Taking on a home renovation can be a great option to save money on the purchase price of a property, and create a customized space that can be a real source of pride. For most people, though, a home renovation is a major undertaking, even under the easiest of circumstances.
Meeting with architects and contractors, understanding various proposals, choosing materials and budgeting are time-consuming and often fall outside the wheelhouse of the average homeowner’s skill set. Ultimately, these renovations have to be paid for either out of pocket or through outside funding. With that being said, a lot of homeowners will simply compare personal loan offers and interest rates in their area, opting for the lender with the most favorable terms. Aside from personal loans, the most common sources of outside funding include credit cards and borrowing from friends and family. Once these plans and decisions are made, renovations can be costly and disruptive, regardless of whether everything goes smoothly. Even minor makeovers are proving more challenging than ever before.
Planning for a home renovation in 2022 poses additional challenges including supply chain delays, inflation and a shortage of tradespeople. Here are three things to know to help make your home remodel experience as positive and productive as possible:
- Renovations need thoughtfulness, patience and cash.
- The price gap between renovated and unrenovated homes is widening.
- Four questions to ask yourself before you renovate
Renovations Need Thoughtfulness, Patience, and Cash
According to interior designer Jamie Drake, co-principal of New York-based interior design firm Drake/Anderson, “To renovate, you must have three things: thoughtfulness, patience, and cash.” Though these three things have always been necessary to take on a renovation of any size, these days it seems that you might need more of all three than you were expecting.
Thoughtfulness. Thoughtfulness “includes developing a set of plans for the renovation as well as a presentation to building management (or HOA) for approval," Drake says. This can include filing for permits with the city or county, or in the case of New York City, as Drake notes, with the Department of Buildings.
In today’s climate, planning ahead is paramount. “Previously, a contractor could order materials as the project progressed, on an as-needed basis,” says Tanya Koul Strausbaugh, a real estate agent at RE/Max Select and founder of Common Ground Investments, a redevelopment and leasing company in Pittsburgh. “Now, because of supply chain delays and escalating costs of materials, anyone renovating should wait until all the materials are on site before commencing the project. You should expect delivery delays, and it’s better to deal with these before demolition begins. Have the foreman check off every item, down to the last nail, before the project starts. You don’t want your kitchen to be all set, but with a gaping space between cabinets and counters while you wait for your oven to arrive.”
Patience. With supply chain delays and labor shortages, more time is required than ever before. “Delivery of materials and approval processes are currently slower than they used to be, as building departments around the country are taking twice as long for approvals as they were pre-pandemic,” Drake says. “And the contractor you may prefer is probably very busy, so you have to get in line. Furthermore, the supply chain issues we are all reading about are not an illusion. Everything from framing to sheetrock to appliances is experiencing delays.”
Strausbaugh adds: “If you did a bathroom five years ago or a kitchen two years ago, the timeline now might be three to five times longer to finish."
With patience comes the need for flexibility, in many cases. “Renovating today is a bit different than in the past,” says Alexander Chingas of the Bross Chingas Bross Team at Coldwell Banker Realty in Connecticut. “An interesting factor is the delay in obtaining building permits and appropriate sign-offs from building department officials as work progresses for more significant projects.” This has only added more time to already extended timelines.
Cash. Cash is also something you’ll need more of than you thought, especially due to delays and inflation. “Prices have escalated in all facets,” Drake says. “The best contractors are extremely busy, and their prices reflect the fact that they can pick and choose the projects they are most interested in. The cost of raw materials and the prices of appliances have gone up, too."
Strausbaugh explains, “In our market in Pittsburgh, a cosmetic remodel that might have taken eight weeks to complete is now taking 19 or 20 weeks."
For a property she renovated a few months ago, Strausbaugh says nine semicustom doors for the interior of the home took 20 weeks to arrive from Ohio, as opposed to the usual five. "And three of the doors were incorrectly sized," she says. "The normal error rate on an order like this might be 2%, but this 30% error rate seems closer to the ‘new normal’ in today’s construction world.”
The bottom line gets affected as well. “In New York City, for example, we used to consider $800 to $1,000 per square foot a generous amount for a high-end renovation,” Drake says. “We are now often seeing prices as high as $1,500 to $1,600 per square foot.”
The Price Gap Between Renovated and Unrenovated Homes Is Widening
Renovated properties sell for more than those in need of a gut job. Buyers will pay more for a “just bring your toothbrush” home, and expect a discount if they need to put thousands of dollars into updating the property. But with today’s supply chain delays, a shortage of skilled labor and the escalating costs of materials, that gap has widened.
“We have definitely noticed a trend which favors properties that provide instant gratification,” Chingas says. “Recently built homes or those that have been remodeled to mirror the taste of today’s buyers are getting the most offers and selling the fastest.”
Michael Mahal, a registered architect and owner and principal at MDG, a design-build firm in New York City that specializes in tailored design and construction services for complex, luxury renovations, says the market for fixer-uppers may be a little less competitive. “People are afraid of renovations at the moment, so there is a lot of opportunity to find affordable places that are in need of some TLC. They don’t want to wait for the work to be done or take on the added risk," Mahal says.
Homebuyers should expect to pay a higher premium for a turnkey property and find deeper discounts if they are open to taking on considerable rehab work. “Busy professionals are willing to spend more than ever before on move-in-ready properties due to not only their fear of renovation delays, but also the scarcity of renovated property on the market,” Strausbaugh says.
That said, if you have the vision, patience and budget, it’s a great time to take on a renovation, since a renovation can so elevate the value of a home for today’s buyers. “This is the perfect time to tackle a renovation. The properties that need renovations are less competitive because most buyers are looking for places that are move-in ready," Mahal says.
Four Questions to Ask Yourself Before You Renovate
While construction and home renovations can be financed, most homeowners find they need more cash to cover the total cost of making their fixer-upper their dream home. The hope is that after all the blood, sweat and tears (and sawdust), they’ll have a home that is customized to their own standards and taste, even if it meant taking out more savings or another loan.But renovating isn’t for everyone. Here are four questions to ask yourself as you consider whether you should buy a fixer-upper:
1. Do You Have the Connections?
Do you know architects, contractors, project managers and other people in the construction business? Can you find some that you trust? Hiring the right people can make all the difference. A project manager or general contractor can streamline the process and keep subcontractors on task and on a timeline. “It’s important to find the right people,” Mahal says. “Sourcing and materials are a bit of a challenge these days, so you need more of an expert than usual.”
2. Do You Have Another Place to Live?
While you’re renovating, you may not be able to live in your place. Some people can live through a kitchen renovation or other aspects of a gut-job, but you can’t live without a bathroom. When budgeting for a renovation, consider that while your new home is ankle-deep in plaster dust, you will likely need to live somewhere else, and generally that’s not free. Do you have the budget to carry two homes, or rent something economical while renovating? If a nearby friend or relative can put you up it may be an opportunity to save, but beware of the strains it might cause on the relationship.
Even if you've done it before, living through a renovation may be tougher than it used to be. “People are working from home more than ever and they can’t do their day jobs while workmen are turning their house into a construction site, banging away in the kitchen and bathrooms,” Strausbaugh says.
3. Do You Have the Vision?
Be honest. Some people are just better at envisioning a project and seeing it through. If that's you, a renovation project can be a creative outlet and an exciting, fun project. There's better chance for success as you communicate with contractors and potentially manage some of the project yourself. Otherwise, it can be an overwhelming stressor.
4. Do You Have the Bandwidth?
The commitment to renovating a house is not small: It's not only hiring the right people, but also having the flexibility to visit the site on a regular basis, taking the time to shop for materials and appliances, and making new decisions when complications arise.
Being even more flexible with your budget and timeline is crucial. That said, “being smart with your budget doesn’t mean you have to compromise, it means you have to get creative,” Mahal says.
If you’ve planned ahead, extended your timeline to account for potential delays, and left cushion in your budget, the finished project might be better and have more value than anything you could buy that was created by someone else. As any expert will tell you, it’s hard to put a price tag on the pride that comes from a successful home improvement project, especially a big one.