THE PROBLEM:
You know your house is not working as well as it could. You have ideas about how to improve it, but you have no idea how much it may cost. Is it better to just sell the house and buy a new one? Or is it better to stay put in the neighborhood you’ve become attached to and renovate?
It can be a daunting decision, but I’ve found a simple and useful exercise you can do on your own that may help you frame the problem and how much money it may take.
The problem basically is comparing two options: Do I sell and buy new, or do I renovate?
I won’t spend too much time on the sell-and-buy decision. Just search online and find out how much houses are selling in your community and other neighborhoods. Working with a real estate agent may be helpful without any upfront costs.
I will focus more on how to look at the other side of the equation: renovation/addition/build new.
Most folks have ideas about renovating their existing house -- maybe changing the kitchen and add a bathroom -- and then building a new addition to the house. For various reasons, this is difficult to estimate without detailed drawings. Those drawings require cost and time to produce. Without better understanding of cost however, I would be hesitant to pay for design and drawings to find out that I couldn’t afford the project.
Instead, I’d like you to consider the following “bracketing” scenarios which can be easily done on your own.
There are three scenarios:
A. ALL NEW: Demolish your existing house and build a new one.
B. RENOVATION+ADDITION: Renovate part of your existing house and build an addition/extension.
C. MAXIMUM SIZE: Keep your existing house AS-IS with no changes and build an addition.
Below is a recent example I completed with a young family.
SCENARIO:
A young family with two young children is outgrowing their 1960’s 1,200 sf house. They have a tentative budget of $300,000.
A key assumption is the cost per square foot of new construction. In this case, I know a modest 1,700 sf house was recently built for approximately $245/SF.
Another assumption is how much of the budget is spent on construction. I assumed the cost of experts and consultants is approximately $40,000. That leaves $300,000 - $40,000 = $260,000 available for construction.
Option A “All New”
This option usually creates the smallest house because all your money is going into new construction costs.
The project demolishes the existing 1,200 sf house and is able to build a new $260,000 ÷ $245/sf = 1,061 sf house.
This is smaller than the existing house! As an architect, I’m not as worried about this option because a smaller one can work better for the family if designed well.
Another important note is that none of these options consider the cost of temporarily living someplace else while construction is happening.
Option C “Maximum Size”
This option keeps the existing house AS-IS with no changes except where the new house addition attaches to the old house.
This produces the largest house project: 1,200 sf existing + 1,061 sf = 2,261 sf.
It’s rare this option works for a homeowner because the existing house often has serious or annoying problems.
Option B “Renovation + Addition”
That leaves option B which as stated earlier is hard to evaluate, but it will be somewhere between options A and C.
In this example, the family’s next-door neighbor recently renovated their kitchen and added a bathroom within an existing house. The neighbor’s house is like their house. The project cost $120,000. So, a reasonable version for our project is a $120,000 kitchen renovation which leaves $140,000 for a 571 sf addition ($140,000 ÷ $245/sf.)
As mentioned earlier, this option is always the hardest to evaluate, but I feel that once potential clients have done this exercise, they then have one more piece of information to help them decide whether to hire experts.
Additional thoughts
In my experience, it’s rare that option C works for people. There are just too many problems to solve in the old house, so most people quickly look at option B and option A.
Most people are skeptical that option A can work for them, so I like to suggest that they do another exercise on their own. Determine the number of bedrooms and baths they need in a house. Let’s say 3 bedrooms and 2 baths. Then, look online for a house plan that is 3 bedrooms and 2 baths and 1,000 sf. There are good plans and awful plans published online. If you can find one that looks like it will work for you, then option A is a possible one for your project especially if you hire a good architect who can often make that online plan better.
For option B, it’s helpful to find “logical” places where the old house stays the same and the renovation can begin. Usually, the renovation cost does not get more expensive than new construction, BUT there are times when certain renovation designs are more expensive than building new. You really can’t know this until the house project is designed and drawings are created. A perfect example of a hard-to-estimate design is building a 2nd floor on top of an existing 1-story house. Again, you mitigate this risk by hiring an experienced architect or builder that can advise you when design choices are leading to expensive construction.
Finally, one can see how important new construction cost per square foot is in this analysis. In this example, I felt good about $245/sf because I’m building a 1,700-sf house right now at that cost. A valid criticism of this number is that it needs to be higher because a new smaller house (1,000 sf) would likely cost more per square foot. The theory is that kitchens and bathrooms are the most expensive spaces to build. In a small house, kitchens and bathrooms take up a greater share of the house space than a large house. That helps explain why there is sticker shock from folks trying to build ADUs (accessory dwelling units) aka granny cottages in the backyard. I’m hearing numbers at $400/sf for a small 400 sf flat.
Anyway, I hope this document is helpful to those that have found it. The intent was to give you tools to help analyze your project before having to spend money on expertise.
Alex Wu, AIA
June 18, 2024