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How Canadians can boost home value through renovation

By Gail Johnson

With the popularity of home-decorating shows like Trading Places soaring, suddenly everyone’s an interior designer. But from a real expert’s point of view, where are homeowners’ renovation dollars best spent?

“Kitchens and bathrooms are the best places to start,” says Toronto’s Howie Track, owner of Traxel Construction, which specializes in high-end residential and commercial renovation and construction. “Kitchens and bathrooms are the first places people look, and if a new buyer sees that the kitchens and bathrooms have been done, then there’s less for them to do.”

Figures from the Appraisal Institute of Canada support Track’s claim. According to the Ottawa-based property-valuation association, bathroom and kitchen renovations continue to be the most popular on the list of perennial home improvements, with a recovery rate of between 75 and 100 percent.

The organization defines “recovery rate” as the likely increase in a home’s resale value that could be attributed to a renovation. If a $10,000 renovation increases a home value by $6,000, for example, the recovery rate is 60 percent.

Landscaping vies for top spot too, according to Track. “If you can wow potential buyers with some curb appeal and the kitchen or bathrooms have also been done, then selling will be that much easier,” he says.

When it comes to renovating older homes, Track suggests updating wiring and plumbing. “Most knowledgeable home buyers will see this as a definite bonus. That said, many first-time homebuyers may not appreciate the work that has been done.”

Approximately 1.9 million households in 10 major Canadian centres did renovations in 2010, totalling almost $23 billion. The average cost of renos was nearly $13,000.

According to the AIC’s most recent data, energy-efficient upgrades are another popular focus for renovations, with an average recovery rate of 61 percent.

Other renovations that have higher recovery rates include the use of non-neutral interior paint colours (67 percent), the addition of a cooking island in the kitchen (65 percent), and the installation of a Jacuzzi-type bath separate from the shower stall (64 percent).

The biggest mistake people make when it comes to renovating is expecting Champagne-style results on a beer budget.

“Clients will say to me, ‘Get a few prices and we will go with the cheapest,'” Track explains. “In construction, you get what you pay for, and if you only consider price, then you are asking for trouble. It’s important not to overpay, but quality trades come at a cost. I always tell my sub-trades that I want good work at a fair price.”

Above all, planning is crucial. It takes at least two to three months to plan for a simple kitchen renovation, Track notes, urging people to read magazines and clip pictures of everything from layouts to paint colours.

“People who don’t plan always run into problems,” Track says. “People need to hire a good architect and a good designer to help them make informed decisions on materials and design. So many times I have clients who don’t want to spend money on a good architect or designer, and inevitably this leads to problems. The better you plan, the less the chance of making mistakes and the better the chance of coming in on time and on budget.

“Try to make as many decisions as possible before you start,” he adds. “By planning, you’ll have a better idea of how long the job will take and how much it will cost. Also, make informed decisions about materials and do some research.”

Budgeting is another basic, as is asking contractors for references and asking for examples of past projects.

“If you set a realistic budget for a job, you have a better chance of not exceeding it,” Track says. “It’s common for contractors to low-bid a job so that they get it. Once the job is underway, the client has no alternative but to pay all additional costs that arise in order to get the job done. There’s a square-footage or unit price for almost everything in construction, so the only real difference between contractors should be the fee they charge.”

Renovations that add features to a home that others in the neighbourhood already have, such as a second bathroom, have higher recovery rates than features not shared by adjacent properties, according to the AIC.

Poorly done renovations may have no positive impact or could actually reduce the value of a home.
Recovery rates and resale value aside, the AIC can’t put a cost on professionally done renovations when it comes to home owners’ sense of satisfaction and enjoyment. That’s priceless!

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Affording A Home

Your “Dream Home” becomes a nightmare when you end up “house poor”, with most of your money going to pay for the mortgage and unexpected costs, with a little left over for enjoyment.
When buying a home, you need to be practical, realistic and informed. Lakeview Realty Inc., Specialists can assist you in finding the “right home”, and can also assist you in evaluating mortgage options, obtain financing and review the anticipated costs involved.

Are you considering applying for a Mortgage? Why not make your first stop with the “In House Mortgage Specialist” at Lakeview Realty. Inc.

Throughout this site, you will find an outline of the normal costs involved in buying a residential “resale” home and a guide for calculating mortgage payments (at different rates and amortization periods.

Note the amortization period has nothing to do with the term of the mortgage. The term is the length of time before maturity and refinancing whereas the amortization period is the period that is used to calculate monthly payments.. this is a very basic definition.

If you require any assistance in relation to applying for a Mortgage, please contact our In House Mortgage Specialist today at Mortgages@LakeviewRealty.Ca

If you are considering purchasing property as an investment for you and your family, we would like to invite you to contact us to discuss the options available to you.

What You Can Afford. There are a few things to consider:

Down Payment & Closing Costs – This is the amount that you have to invest in a home, bearing in mind that you have to keep a “reserve” for closing costs and moving. The land transfer tax is the biggest closing cost. See the chart in the following pages, plus the other costs involved.
The amount remaining is your down payment. Part of this will be required as “a Deposit” when you make an Offer, and the balance will be paid on closing. The difference will be covered by the mortgage.

The Mortgage. How much can you afford to borrow? A conventional mortgage is a mortgage that does not exceed 75% of the sale price of the home, with a down payment of 25%. There are other options however. A first mortgage can be obtained for up to 95% of the value of the home with as little as 5% down. There are qualifications and conditions however, which we would be happy to discuss with you, or provide information to you.

The first step is to calculate the amount which you can afford to repay the financial institution for principal and interest on a monthly basis. We would be pleased to assist you with this calculation.

Financial institutions do this by calculating your debt/service ratio.

They calculate this on two different levels.

The GDS. (gross debt service) is the maximum amount which they feel you should pay for Principal & Interest (P & I). 32% of your gross combined monthly income is the amount most commonly used.

The TDS (total debt service) is the other consideration. This amount factors in all other monthly expenses for items such as car loan or lease, personal loan(s), etc. 40% of your gross combined monthly income is the factor used for TDS. This means that your monthly payments for P & I; plus your other monthly fixed costs would not exceed 40% of your gross, combined monthly income.

Interest Rates & Other Variables:

The amount of the mortgage you can arrange, based on payments you can afford, depends on the interest rate and the amortization period you use. The lower the rate, (and the longer the amortization period) than the larger the possible mortgage you can afford will be.

Terms of the mortgage: Other things to consider might be:
-How open is the mortgage? (When can you pay it off without penalty/ or portions of it?)
-Is the mortgage portable? (Can you move it to another house if you buy another in the future?)

This is for general information only. Please contact us today to discuss your financial options.

Michael J Preston, Broker of Record, Lakeview Realty Inc., Brokerage 705-325-3600 or email.