Appraisal News and Business Tips

How to Make the Most Money on your Home Addition

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We all think about how we could change our homes to better fit our lifestyles. Additions are a popular way. We don’t have to move, and can get more living space suited to our needs, such as a home office, family room, or master bedroom suite. Additions are expensive, and making sure yours adds as much as possible to your home’s value requires planning and research.

Good planning – a key to success
I was running late for an appraisal appointment with Sam and Joan T. I had appraised their home five years ago when it was purchased, and was looking for the house. I finally found the address, but the house looked very different. The two bedroom, one bath, 1,000 square foot home had been transformed into a 2-story, 2,500 square foot home.

As I entered the home, I saw why they built the addition. The two toddlers I met five years ago, Robby and Sue, now needed more space. Sue was playing a game on the computer in the family room, and Robby was in his bedroom doing homework. The family had needed more space for privacy, hobbies, and visitors.

Their neighbor, John M., a single parent, had also purchased a small home five years ago. He completed his second story addition six months ago, just before his oldest son reached adolescence. His addition was designed so that the master bedroom had a master bath, and an excellent view. He had taken the time and effort to find out what buyers wanted by touring a nearby new home development and talking with local real estate agents.

Unfortunately, Sam and Joan T. did not plan as well. The new addition gave them the additional space they needed, but it failed to take advantage of the excellent view of the valley and bay. Also, the owners had not installed a master bath, a feature that most buyers in their price range wanted. When their children become teenagers, both the parents and children will want more privacy. Robby and Sue, as they got older, would spend more time in the bathroom. A master bedroom suite can help.

John M. spent a little more money on his addition than did Sam and Joan, but his home was worth much more than theirs. John had spent more time researching how the get the most value from his addition.

When home owners need more living space, often they fail to consider what type of addition will add the most value to their homes. Instead, they often focus on getting the most space for the dollars available. With a little more planning, Sam and Joan could have increased the value of their home much more.

The best buy in a neighborhood is often a small home needing some work, such as kitchen and bath updating, and that can be easily enlarged.

Sam and Joan T. had wanted to move into the neighborhood for some time. The schools were the highest rated in the city, and it had a “rural” feeling often lacking in urban areas. But the homes were above their price range. Finally they found a home they could afford. When they bought it five years ago, they saw its potential. Because the house was smaller than the others in the neighborhood, and needed some work, Sam and Joan were able to purchase the property for a price well below other nearby homes. Sam had some construction background and could do part of the work himself. Their two children were toddlers at that time, so they would not need an addition for five or six years. Joan had started her law practice several years ago, and her profits were increasing every year, so they could put aside money for the addition.

The land had plenty of space for their children to play, and good bay and valley views. Buying in a neighborhood on the upswing is a good way to increase value over time. This neighborhood had been changing over the past twenty years. When Sam and Joan T. purchased their home five years ago, two upscale new home developments had not yet been built. The neighborhood is now the most prestigious in the city, and still has some of the small pre-1940 homes remaining.

Before Sam and Joan purchased their home, they hired a structural engineer to tell them if the one-story house was structurally sound enough for a second-story addition. The floor plan of the original one-story home could easily accommodate conveniently located stairs to the second floor. After completing the addition, the floor plan would be similar to homes originally built as two-story homes.

The living room of the original home was very large in relation to the small home size, and had a high, wood beamed, ceiling, making it appear even larger. Although the addition more than doubled the size of the home, the living room was appropriate in size for the larger home. Often, additions are made to homes with small living rooms, which then look too small in the enlarged home.

The original home did not take advantage of the view. When it was built in the 1930s, views were not as important as they are today. The neighborhood had mostly small farms and horse ranches. The living room faced the street, with no view.

When the second story addition was designed, it did not utilize the view at all. None of the rooms had views. Even worse, windows could not be added because of the slanting roof line on the view side of the home.

Most of the buyers in this neighborhood and price range want a master bath. Many will not consider purchasing a home without one. Sam and Joan only put one bath on the second floor, and left no easy way to install a second bath later.

Using one bath as both the hall and the master bath is an excellent cost saving option until enough money is available to add the second bath. Although the bath was adjacent to the master bedroom, the plumbing was installed in the wall between the bath and the master bedroom. Installing a second door to the master bedroom was not possible without a major bath remodel of the new bath.
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The inconvenience and hassle factor
I always ask home owners if they would ever do another major addition. Nine times out of 10 they say “no”. Sally and John W. were typical. I complimented them on their new addition, which blended well with the original home both inside and outside. Then they told me their story. I had heard it many times before.

Sally and John had recently purchased their home. They had been looking for many months in a popular, well-established neighborhood of older homes. Many families with children were moving into the neighborhood. Finally, they found a home close to what they wanted, a popular, classic, two-story design built in the 1930s with an old kitchen. The house lacked a family room and a master bedroom suite. They decided to add a two-story rear addition and remodel the kitchen.

Rear additions and kitchen remodels are popular in the neighborhood and returned about two-thirds of the construction cost on resale. Demand was strong for homes with modern features. Many of the homes lacked family rooms and master baths.

After the addition, there would still be plenty of room in the rear yard for Jimmy and Julie, their three-year old twins, to play. A master bedroom suite on the second floor and a family room on the first floor would blend in well with the existing floor plan.

So what was the problem? Their home was well suited for an addition, which would return at least two-thirds of the cost. But Sally and Jim failed to consider how much the addition would disrupt their lives.

Both Sally and John had hectic lives. One toddler is a handful, and some would say that twins are almost the equivalent of three children. On top of the child care duties, the twins had developed a medical problem requiring special meals. John would soon be making partner in his law firm, and was working long hours.

One Monday, the contractor arrived and immediately started gutting the kitchen. Sally had no where to prepare the special food her twins required, and could not purchase it already prepared.

Construction had begun in July. Summers were very hot where they lived, so the construction workers started at 6 A.M. Because of their busy schedules, Sally and John knew they had to set aside “quiet time” where they could be together. The twins were not early risers, usually sleeping until 7 A.M. Every morning Sally and John had breakfast together between 6 and 7 AM. They talked about the twins, John’s current legal cases, and other topics.

Since the construction work pounding started at 6 A.M., the twins no longer slept until 7. Sally and John’s “quiet time” was gone. They did manage to set aside one or two evenings a month for an evening out at one of their favorite restaurants.

Fortunately, the home had an old laundry tub in the damp, unfinished basement. Sally was able to set up a makeshift kitchen with a hot plate and microwave, washing the dishes in the tub. Carrying food and plates up and down the basement stairs quickly became too much work, so they started eating in the musty basement. At first Sally worried about the twins falling down the stairs, but they quickly learned how navigate them safely. They became faster than their parents at going up and down the stairs.

Keeping the house free of dirt and dust was impossible. Loss of privacy was a big problem because they were doing a two-story remodel, and could not retreat to the second floor for privacy. Strange people were coming and going in their house as construction progressed and different subcontractors were used. The air conditioning didn’t work well because of the construction. And, of course, the construction took much longer than they had anticipated.

Did they love their new house after it was completed? Yes. Did Sally and John’s marriage survive? Yes, but barely. Would they do it again? Never.

Sally and John spent lots of time poring over design books, interviewing architects, and getting construction bids. Unfortunately, they did not ask other home owners about their experiences and advice when they did their additions. They could have asked contractors, architects, friends, and neighbors for names and phone numbers of people they could call. Most people are very willing to talk about their experiences, as their friends and relatives are tired of hearing about it.

The only way I know to avoid all the hassles of building a large addition is to live somewhere else temporarily. All the people I know who chose this option knew about the disruptions and stresses of construction. They had asked people who had gone through the same experience, or had done a major remodel previously. The option I see most frequently is renting another home or an apartment while the addition is being built. Sometimes, owners can stay with relatives, or in the house of a friend who is on an extended vacation. If John and Sally could have afforded two mortgage payments, they could have stayed in their old home while the new one was being remodeled.

If living in another location temporarily was not an option, Sally and John could have eliminated some of the hassles by planning ahead. Lack of kitchen facilities is always the biggest problem. They could have delayed the kitchen remodeling as long as possible after construction started.

Setting up a temporary kitchen is very important. The closer it is to the dining room, the better, so that at least you are still eating in the same room. Sally and John had an attached garage next to the kitchen. Plumbing was in the wall between the kitchen and garage, so they could have set up a temporary kitchen with a sink, microwave, and hot plate. A work bench and shelving could have been installed and used later for a workshop. They could have purchased or rented a small electric stove also, as adequate electrical service was available.

If they preferred to use the basement for a temporary kitchen, they could have replaced the awkward laundry sink with an inexpensive used kitchen sink. They could have partitioned off part of their basement for a kitchen and eating area, using painted and sheet rocked temporary framing or even partitions from a used office supply store. A portable heater or dehumidifier would make the basement dryer. An inexpensive rug over the concrete floor would make give the basement a more home-like feeling.

John and Sally could have hired a cleaning service on a regular basis to help keep down the dirt and dust. Putting the twins in preschool for a few hours a day during the week would also have helped.

Waiting a few years until the twins were in school, and John was more established in his law practice, could have helped reduce stress levels. Child care would be greatly reduced. John could have taken time off work to help with the inevitable problems of managing a household during a very stressful time.
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Dealing with the city and your neighbors

Jim R. had just accepted a new job and was moving to another part of the country. His friends, Stan and Mary T., had long admired his home, including its location on a lagoon. They wanted to buy Sam’s house. Because both parties wanted to be sure the price was fair, they asked me to do an appraisal.

Over the phone, I asked Jim R. which model he had (the home was in a planned development), whether he was on the lagoon, and what he had done to his home since he purchased it 10 years ago. I was surprised when Jim said he had just completed an addition. Additions are unusual in this neighborhood because the homes were built over the past 15 years, and have small lots.

As I drove up to the house, I saw a second-story addition that blended in well with the original home. Unfortunately, after inspecting the addition, I had some bad news for Jim. His new addition had very a poor floor plan returning much less than the construction cost. Jim was not surprised. Because of the opposition of one neighbor, it was all he was allowed to build.

Jim is a computer systems analyst. His company allows their employees to work at home several days a week. Because his commute was becoming more and more of a hassle, two years ago Jim started working at home on Tuesdays and Thursdays. To his surprise, he was much more productive at home because were fewer interruptions and distractions.

The home was one of the smallest in the development, with 1,500 square feet. The master bedroom was large, but the other two bedrooms were very small. Jim was feeling more and more cramped working in one of the small bedrooms, so he decided to build an addition.

The lot size was small, and there was no room for a first floor addition, so a second story addition was the only option. Most of the homes in his development were two-story homes, so it would fit in well. The foyer in the home was large and could easily accommodate a stairway to the second floor. Home offices were a very popular feature in the neighborhood. An addition would return about 65% of the construction cost.

This home was a good candidate for an addition. It was located on a lagoon with a very good view and was smaller than most of the nearby homes. The lot was more valuable than other lots because of its lagoon location. The small floor plan was not very popular with buyers, who prefer larger homes. Also, Sam’s home had large two-story homes on both sides, which made his home dark inside and less appealing to buyers.

Jim R. hired an architect to design an 800-square foot second-story addition with a bedroom, bath, and office that could be used as a family room. The size of his home would increase from 1,500 square feet to 2,300 square feet, the typical home size in the neighborhood.

The addition conformed with the zoning regulations. His design was progressing well through the design review process in the city planning department, until his next door neighbor was notified about the addition, a requirement of local planning and zoning laws.

His neighbor objected to a two-story home next to his house because it would “block the light” in his home. Jim had not expected opposition because the homes on both sides of him had two stories. The home of the neighbor opposing his addition did not even have any windows on Sam’s side of his house. Over 80% of the homes in the development had two stories.

Jim was a very quiet, private person. He knew his neighbors by sight, and said hello when he saw them outside, but had never been inside their homes, or even had a conversation with them. He did not subscribe to the local newspaper and was not active in his home owners association. Jim was not aware of previous problems in the development with additions. The architect he hired was not local, and was not familiar with the problems.

Many times I have seen additions approved by planning departments that didn’t even conform to zoning laws. The owner had obtained a variance. Often, the addition was for a personal reason, such as taking care of an elderly parent. How did they get the addition approved? They talked with the neighbors, telling them why they wanted it, and seeking their advice on how to make sure the addition did not affect their homes. When their application for a zoning variance was voted on by the planning department, there was no opposition.

Jim should have started subscribing to the local newspaper at least six months prior to starting work on his addition. He could have attended a few planning commission meetings to see what the local issues were, or even watched them a the local cable TV station. By attending meetings of his home owners association he would have known about other home owners who had similar problems and how they resolved them.

Most important, Jim should have invited his neighbor to his home for dinner. He could have shown him what he was planning, explaining why he needed the addition, and asked the neighbor for advice on how to minimize the effect on his home.

Because of the neighbor’s opposition to Sam’s original plan, he was forced to build a smaller addition, which did not make any use of his excellent lagoon view, had only a half bath, had only two very small windows, and did not have a usable bedroom, only an open loft area with no privacy.

Jim had other options. He could have combined two of his three bedrooms into one large bedroom. When he sold the property he could have put the wall back, restoring it to a three-bedroom home. He seldom used his living room, and could have converted it to a separate home office by putting in a wall, removing it later when he sold the property. Or, he could have used his master bedroom as his office. I have seen all of these options used effectively.
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A checklist for home owners planning an addition
As an appraiser I frequently see home additions. Some are well designed, appropriate for the home and the neighborhood, and add substantial value to the home. Others should never have been built. Most are somewhere in between. I often feel sorry for those owners who invested so much money for so little return in value.

The most frequent reason for an addition is, “We didn’t want to move.” Most of us don’t like to leave the neighbors we like or put our children in different schools.Should you build an addition? Unfortunately, few homes are good candidates for additions.Planning ahead will let you prepare for any problems and get the most return for your investment. Listed below are the factors to consider.

Personal

  • Why do you want the addition? Are other options a better choice, such as moving to a larger house, or building a smaller addition?
  • Can you handle the noise, dust, and disruptions of construction? Should you wait for a better time? Can you move to an apartment or rental home temporarily during construction?
  • How long do you plan to stay in your home? The longer you stay, the greater return on your investment. This is particularly important if it is not a very good investment, but you build it because you really want it. The longer you live there, the longer you can use your addition.
  • How old are your children? If you are enlarging your home for them, how long will they be living there?
  • What lifestyle changes do you see in the future? Will you have an elderly parent living with you? Will you need a home office or more space for a hobby? Are you worried you will have difficulty climbing stairs as you get older?

The neighborhood

To find the answers to these questions, drive around your neighborhood and consult with real estate professionals.

  • How many nearby homes have additions? What types of additions were built (rear vs. side, two-story vs. one-story, etc.)? What types of homes look best with additions?
  • After the addition, how will your home compare in size to other homes in the neighborhood?
  • How much will the addition add to you home’s value in relation to its cost?
  • Is your neighborhood changing to more (or fewer) families with children, retirees, or owners with home offices? What do these buyers want?
  • What are the typical home prices? Are they going up or down, or are they stable?

Your neighbors

  • Who are your neighbors? Are they long time home owners resistant to change? Are they building additions and doing other improvements to their homes?
  • Do you need a zoning variance to build your addition? Does the local planning department send letters notifying your neighbors about your plans for an addition?
  • How well do you get along with your neighbors? Have you spoken with them about your plans?

Zoning, planning, and your neighbors

To find out about local zoning and planning regulations, visit the appropriate city or county department, usually the Planning Department.

  • What are the local zoning requirements? Are they being changed?
  • What restrictions does your local government have on home additions? Are they flexible or rigid in enforcing the requirements?
  • Is obtaining a variance from the zoning requirements difficult? What will they usually allow?
  • Do you need to hire a local architect and contractor who know how to deal with the local planning and building departments?
  • How strict is the design review process? How long will it take to get your design approved?
  • Do you have a home owners’ association? Do they have regulations?
  • How much room will be left in the yard after your addition?
  • Do your neighbors have the legal right to oppose your plans? What are the local yard requirements?

Exterior construction and design

  • Is your existing home built to accommodate a second-story addition without substantial reinforcement?
  • Will the exterior design be compatible with the other homes in the neighborhood?
  • Can you build a one-story instead of a two-story addition. One-story additions are less expensive to build.
  • How much yard area will be left after the one-story addition?
  • Will a two-story addition make your yard darker? Do you want to use it to block the hot sun in the summer?

Interior – floor plans

  • How well will the floor plan of the addition blend well with the existing home? Most additions have floor plan problems.
  • What will the traffic flow be like? Will you have to go through one room to get to another, such as through one bedroom to get to another bedroom or to the only bathroom on the floor?
  • How will the floor plan of your home after the addition compare with the floor plans of homes similar in size without additions?

The bottom line – money

How much will the addition cost? How much will it add to value? How many years will it take to “payback” the cost?

Home value after the addition $185,000
Less: value before the addition    $150,000
——–
Value of the addition =        $ 35,000

Less cost of the addition      – $ 50,000
———–
Unrecovered cost =       $ 15,000

Years you expect to remain in your home = 10 Years
Unrecovered cost per year  =      $1,500 per year (15,000 divided by 10 years)

The question to be answered is: If you plan to live in your home 10 more years, is the addition worth $1,500 per year?
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