Debbie  Lamberger

Debbie Lamberger

Licensed Real Estate Professional/Real Estate Consultant

HomeLife Advantage Realty Ltd.

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Remodelling, Additions and ROI

When remodeling your home, building a room addition or adding a new level to your home can be pricier than, say, renovating your deck. There’s the inherent benefits that homeowners can enjoy about a room addition, like the extra space and functionality, but homeowners should certainly be aware the costs as well.

Arriving at a concrete number (pun intended) is never an easy task, either for the homeowner or the contractor. Typically, remodeling contractor’s ballpark the cost of an addition in dollars per square foot. There are a number of reasons for this, including:

·               It provides a rough baseline of costs typically associated with your home addition

                (i.e. labor, materials, fees)

·               The quality of materials can vary depending on the client’s tastes

                (ex. wood flooring vs. tile)

·               The availability of material

·               The timeframe and expedience of the project

·               It helps assist the homeowner determine a realistic budget

·               It screens out wishy-washy clients

Home estimates in and of themselves take time and effort, so expect for the conception of your home’s addition to cost money even before a single nail is hammered.

Factors Affecting the Cost of a New Addition

One common question that homeowners ask is how much a new addition actually will cost after an estimate is provided.

The answer, however, is more elusive, as adding on to any home—whether it is building upon the pre-existing “footprint” or a new level—is subject to a host of complex factors.

These factors may include (when applicable):

·               Architectural design

·               Site preparation (i.e. demolition, excavation)

·               Concrete work

·               Support structure (standalone and/or in conjunction with existing structures)

·               Roofing materials

·               Siding

·               Ceilings/Walls

·               Carpentry

·               Inspections

·               Electrical and Lighting

·               HVAC

·               Carpeting

·               Installation of window

Hidden Costs

As a consumer, it is in your best financial interest minimize costs when adding a new home addition.

One of the first places to keep an eye out for hidden costs is to scrutinize the remodeling contract. While it may cost more initially, be sure to demand a fixed-cost contract. This contract should include:

·               a detailed list of the work involved

·               a change-order policy

·               a firm price

The advantage of this contract is that you can shift the responsibility of meeting the costs and budget onto the contractor. For instance, if it is determined that dry-rot is discovered in your support structure, leading to additional work and materials needed to complete the project, the contractor will be legally responsible for assessing this beforehand—not when your project is on the line.

Also, this helps offset the cost of materials that may rise during the duration of the project. This also helps filter out shady contractors that may try to exploit homeowner. The change-order policy is also important, as you have a right to change the project if you feel that alterations need to be made after the contract is signed.

This is a way that contractors protect themselves, but it also gives you a firm idea of what costs will occur should you change your mind during the completion of your home addition. Also, don’t forget that if you secure a loan for a part or the entire amount of the addition, you’ll have to pay loan origination fees and processing fees, which can amount to 1 – 2% of the total loan amount. Lenders typically require appraisal and inspection fees to determine the viability of your home’s addition, as well, so expect to pay these fees.

Taxes and Insurance

As a result of any addition to your house, you should expect your insurance premiums to go up. Depending on the replacement cost for the new addition, your premiums can jump significantly. This all depends on your insurance provider among many other factors, but a good way to ballpark your new premiums take your home’s value and add in a 125% replacement cost of the new addition.

For a home that was originally valued at $200,000, now with a $100,000 addition--$300k in total, you can expect premium to jump almost 50%. Taxes follow a similar logic, but are also dependent on many fluctuating factors. On your building permit application, a value will be stated for the new addition—this amount will be added to your home’s valuation for the following tax year, which typically increases your annual property taxes.

However, taxes change year-by-year based on the housing market—for a home’s value that’s skyrocketed based on a real estate bubble, you may see a significant increase.

Vice versa, a slumping real estate market may seem your taxes only raises minimally. These factors will play heavily into how potential buyers view your property when determining if your home is a worthy investment. Taxes and insurance premiums also will play a part in how much money you are willing to recoup—for a house that’s been on the market for a while, you may find that these costs begin eating into your ROI.


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