From budgeting to financing and handling unforeseen problems, here are the top four things homeowners need to know about home renovations and maintenance.

2020 could very well be called the year of renovations, as homeowners ventured to expand their kitchens, transform extra bedrooms into home offices, create all-in-one entertainment spaces or build outdoor oases to temper their wanderlust.

According to HomeAdvisor, the average American household spent $13,138 on home services in 2020, with $8,305 going toward home improvement projects — a $725 increase from 2019. The renovation rush will likely continue into 2021 as 41 percent of homeowners said “making their home better suited for lifestyle needs” is a top priority as social distancing continues.

How to budget for a renovation

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Properly budgeting for a renovation can be a complicated process, as homeowners must not only consider the cost of materials and labor but the cost of an unforeseen maintenance issue that must be fixed before proceeding with a project.

Real estate broker Cara Ameer said homeowners and homebuyers looking to purchase a fixer-upper should create their budget based on a worst-case scenario, where additional materials must be purchased, a preferred countertop or cabinet is out of stock, additional contractors are needed to complete a job, or unknown plumbing, electrical or structural issues must be ironed out.

“There are cosmetic things like painting, new carpet, countertops, or flooring; you know, sort of the fun remodeling things,” she said. “But often what lies behind that are maintenance and structural issues that have to be corrected.”

“There’s always more to a fixer-upper or renovation than meets the eye. Think of Property Brothers or Flip or Flop — they always get into something that’s going to cause some alarm,” she added. “They say, ‘We need a beam to take the wall down, and that’s going to be $5,000 and there’s hidden termite damage.'”

Ameer advises homeowners to create an initial budget and triple it to make sure they’re well-equipped for any surprises that arise. “Make sure you have the financial means to handle that because [renovations] aren’t for the faint of heart,” she said. “Budgets can be blown out of proportion very quickly.”

Kitchens are the most popular room to remodel, with the average project costing $25,424. However, homeowners can spend as little as $4,000 or as much as $60,000 depending on the size of the kitchen, the number of updates and design fees.

Roughly 25 percent of the budget will go toward labor, while cabinetry and hardware ($6,000 or more), appliances ($3,200 or more) and countertops ($2,300 or more) are often the most expensive projects.

Bathrooms, the second most popular remodeling project, cost an average of $10,718, with homeowners spending as little as $3,500 on a small bathroom or more than $25,000 on an off-suite bathroom.

Roughly 50 percent of the budget will go toward labor, with vanities ($300 to $3,800), showers ($300 to $3,000), fixtures ($200 to $1,800) and flooring ($200 to $1,350) comprising the lion’s share of the materials cost.

The next favorite, home offices, can cost anywhere between $5,000 and $22,000 based on the addition of built-in desks, bookshelves and cabinets ($1,200 to $3,900), hardware and connectivity ($100 to $3,000) and soundproofing ($1,000 to $2,400). However, unlike kitchens and bathrooms, home offices renovations offer tax benefits (like deducting the entire renovation cost).

Lastly, outdoor renovations are the hardest to price as they can involve a bevy of additions, including a new pool and pool house, decks, porches, sunrooms, outdoor kitchens and much more. However, HomeAdvisor estimates a full backyard renovation can easily reach the six-figure mark.

Paying for a renovation

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After creating a budget, it’s time to figure out the best way to pay for a renovation. According to MarketWatch, homeowners who completed a renovation this year favored using funds from their checking accounts (34 percent) or their credit card accounts (29 percent). Another 25 percent used money from a renovation savings fund, while 8 percent applied for a personal loan.

Homeowners can also use a home equity line of credit (HELOC) to borrow a portion of their available equity to bankroll a renovation. During the 10-year draw period, NerdWallet explained, homeowners will make interest-only payments, which switch to principal and interest payments once repayment officially begins.

HELOCs are a common option for homeowners — thanks to the lengthy repayment timeline, the opportunity for a tax deduction, and the opportunity to improve a home’s value without depleting checking or savings. However, HELOCs come with risks that homeowners should consider.

Variable interest rates could make borrowing more expensive than anticipated. Paying the minimum payment during the 10-year draw period could result in untenable monthly payments later, and defaulting on a HELOC could result in foreclosure.

“The stakes are higher when you use your home as collateral for a loan,” a Bankrate explainer read. “Unlike defaulting on a credit card — where the penalties are late fees and lowered credit — defaulting on a home equity loan or HELOC means that you could lose your home.”

“Before you take out a home equity loan, do your homework,” it added. “Ask yourself if you have sufficient income to make regular payments and whether home equity loans are the best solution for your financial needs.”

In addition to traditional funding options, homeowners can delve into the world of cash-for-equity options offered by startups such as HomeTap, Unison, Point and Noah. These alternative financing companies allow homeowners to sell a portion of the equity in their home in exchange for cash to use on renovations or other needs.

Homeowners then have 10 years to buy out the company’s equity investment in their home through a home sale, refinance or another way. As mentioned in another Inman article, homeowners are taking a gamble with this option as well, as the payback amount could end up being more than they originally borrowed due to appreciation.

The main selling point to these options is the lack of required monthly payments, which could help homeowners with limited liquidity or a not-credit-worthy profile make renovations that are crucial to the function of their home, such as the need for new plumbing, electrical or structural work.

“We take a holistic view of the financial situation of the homeowners we partner with, and this is the fundamental reason why Patch exists — we want to provide people access to credit while taking into account their full financial profile including their savings and income and not just focusing on their credit score, which is what most of the banks are doing,” Noah founder Sahil Gupta told Inman in 2019.

Lastly, homeowners who are making renovations in preparation for a sale can reach out to iBuyers or traditional brokerages who will pick up the cost of renovations and deduct it from the sale price during escrow.

While iBuyers have more control over the renovation process, traditional brokers who offer these programs allow sellers to choose which projects to take on and decide how much they’re willing to “spend” in hopes of garnering heftier offers.

Keller Williams agent and The 805 Team leader Jeff Landau has a “pre-modeling” program for sellers where his team will handle renovations and recoup the cost at escrow. Landau said sellers have the final say on the projects and budget, but he urges them to make choices through a business lens.

“At that point, it becomes a business decision as opposed to personal tastes for the family and what the family’s needs are or the homeowner’s needs are,” Landau said. “So it really starts again, preparing the product.”

Landau said most homeowners limit their projects to landscaping, painting, flooring and small kitchen and bathroom updates. He also suggested homeowners consider making updates to their backyard and home office in response to increased interest in those areas.

“That is going to resonate with many more people than prior to the pandemic,” he said of those two features. “And it’s going to fulfill their real estate needs.”

Landau said the projects can take anywhere from a few weeks to a few months, and some homeowners may opt out of longer-term renovations if they need to move in a pinch.

“I would gather the different options of improvements, what the cost of those improvements are, and then assuming all of those are done, what does that do to the sale price? I would lay that out for the seller, because it’s their money, it’s their home, it’s their life,” he said.

“That helps them figure out if it’s more valuable for them to get a quicker sale, even if they’re leaving money on the table,” he added.

Mitigating other problems

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Along with remodeling usually comes other home maintenance projects such as replacing home insulation, deep cleaning high-traffic rooms, handling pests or ridding the home of persistent pet odors.

Some projects, such as deep cleaning rooms or eliminating pet odors, can be done by the homeowner with the use of common household cleaning items. However, severe problems will need to be handled by professionals.

If that’s the case, homeowners can expect to pay $1,400 for a professional pet odor and stain removal service. The cost will depend on the severity of the issue, which cleaning method is used and whether floor replacement is needed.

For steam cleaning, professionals charge up to $200 per room and an additional $50 to $80 for each piece of furniture that needs cleaning as well. Odor elimination costs another $40 per hour, and total odor remediation costs up to $250 per hour, depending on the severity of the problem. If a client prefers a chemical-free clean, home improvement platform Fixr said the cost can balloon up to $1,100.

However, in severe cases, steam cleaning and odor elimination and remediation may not be enough. In this instance, the flooring will need to be removed, the subfloor will need to be cleaned, and new flooring installed, which can cost up to $10,000 per room.

A professional ozone machine shock service may need to be added to clean the air, which tacks on an additional $1,100 for homes greater than 3,000 square feet.

In addition to odor removal, homeowners may need to take care of pests, such as insects, rodents and other small animals or wildlife. Homeowners can spend as little as $50 to get the job done, but the average pest removal costs between $350 and $1,000. Heavy-duty jobs that include dangerous wildlife such as snakes, alligators, bats, etc. cost more, with costs skyrocketing up to $7,000.

Fixr said homeowners have six options to take care of pests, with the first two being a more DIY approach of simply getting rid of what’s attracting the pests (e.g. emptying overfilled trash cans) or buying a pet that will do the job for you (e.g. adopting a cat to rid your home of mice).

The next options include chemical pest control, fumigation or a heat treatment that “superheats” your home to get rid of stubborn pests like termites and bed bugs. Chemical pest control is the cheapest option at $250 to $1,000 per room, while fumigation and heat treatments cost an average of $4,000.

Lastly, homeowners can choose eco-friendly or humane pest remediation options. Eco-friendly pest removal costs $250 per room and uses products that aren’t harmful to people or the environment. The cost of humane pest removal varies depending on the severity of the problem, and it’s handled by trained wildlife professionals.

What’s the return on investment?

Here’s the million-dollar question: How much value will I get from all the blood, sweat, tears (and money) involved with a renovation?

Much like other answers in this article, the exact ROI will vary as all homebuyers don’t value the same things, and nobody knows if home offices will recede to the background of buyers’ wish lists in upcoming years.

But trends show that upgraded roofing, flooring, kitchens, bathrooms and landscaping will always yield a healthy ROI of up to 106 percent of the cost, according to a recent Inman article on the matter.

Happy renovating!

Email Marian McPherson

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