Home Renovations and You
As summer takes hold in New York City, many homeowners are returning to their passion projects– and chief among them are plans for renovations and remodeling. But as with most real estate dreams, even these smaller construction projects require a good deal of time, funds, and most importantly, a team of professionals you can trust to get the job done properly.
We’re are excited to announce the beginning of a new series, Bamberger Answers, in which we speak directly with experienced professionals from every corner of the the real estate community. For our inaugural post, we’ve decided to break down the essential challenges a homeowner faces when renovating an apartment. To help shed light on this topic, we spoke with a general contractor and renovation company CEO, a veteran real estate lawyer, and the Resident Manager of a popular Murray Hill condominium.
Below are some of our favorite excerpts from these conversations.
We hope you enjoy.
Founder & CEO, Bolster
Fraser worked as a general contractor in the UK and Mexico before founding Bolster, a transparent platform that pairs homeowners with vendors to complete renovation projects on-time and within budget.
[The Bamberger Group] You’ve worked as a general contractor in several housing markets– the UK, Mexico, and now in New York City. What are some challenges and advantages facing homeowners here that are unique to this market?
[FP] The largest challenge is decoupling the disinformation in this market. It’s a hugely fragmented industry, and it’s been around for a very long time. The problem we’re trying to solve is, “How do you educate the consumer what the real cost is, and why that is the real cost?”
Contractors can come along and say, “You’re paying $300,000? I can do that for $160,000.” And because there’s no standardized design/build/fitting process, or a structure of information and accountability, it’s incredibly easy for the consumer to buy into the idea that they can do their project for significantly less than reality. It creates a vicious cycle where everyone is predisposed to trying to lower the cost as much as possible without really compensating for the effect of doing this. So you have lots of projects that are under-resourced right from the beginning. And that’s a real problem. You can be the James Bond of renovation, but if you’re under-resourced, you are not going to create a good user experience, and you’re probably going to run out of money throughout the project. And this happens all the time. It is endemic. As is architects designing beyond the owner’s budget– which is probably one of the biggest problems that we’ve encountered.
I don’t think this problem is unique to New York– I’ve witnessed them in several markets– however they are amplified in New York City because of the price of the real estate and the sophistication of the consumer.
[TBG] Many people believe that if you’re not sticking with your apartment for the long haul, you should be wary of damaging the marketability of your home when it comes time to sell again in 5-7 years. What would you say to homeowners who are wary of renovating to suit their personal taste, as opposed to renovating to suit the needs of the market? Could an overly-specific passion project actually hurt your chances of getting a return on your investment?
[FP] One way to think about this is to segment it into different types of consumers. If you’re buying a $2-3 million property and you intend to live in it for 5 to 10 years– and the majority of our clients spend an average of 8 years or up to the rest of their lives in their homes– my advice is to completely ignore the financial ramifications of your renovation decisions. Number one: you’re going to be living in the home for 8 years, and the biggest factor here has to be quality of life. You do not want to be living in a home every day that you don’t feel comfortable in, or that is impractical, because of the potential resale opportunity.
We have seen beautiful properties– beautiful properties– completely gut renovated. If you’re an affluent owner, you’re going to, as we call it, “personalize the cave.” Because you want it to be yours. We’ve seen that nothing you do can truly bear out to give a positive return on investment, because you don’t know who’s going to buy the property, and typically at the higher end of the market, they’re going to gut renovate it. No matter how good it looks. You walk in and you say, “Wow, this is beautiful.” Whoever buys it invariably ends up completely changing it.
"You don't want to be living in a home every day that you don’t feel comfortable in because of the potential resale opportunity."
At the lower end of the market, there is a higher sensitivity to those types of custom renovations that you might be slightly more careful of. I’d say that if you’re increasing the space, if you’re increasing the quality of the infrastructure, if you’re increasing the quality of the mechanical systems– electrical, plumbing, HVAC– those are typically good investments. But if you’re starting to get carried away with extreme customizations, then beware. You are traditionally going to be less likely to recoup the investment.
[TBG] What are some common misconceptions among homeowners with regards to remodeling a home?
[FP] Definitely “How much is it going to cost, and why?” There is a gross misappreciation for how much it actually costs to renovate a property– and not just in New York City– but in general.
“What do you see?” is typically what people want to think about in terms of cost. “If I can see the material– I can see my faucet, my walls, etc.” But what’s often not understood is, you’re not buying a car. It’s not a fixed object. You’re not going online and buying an iPhone, and looking at established build features and comparing them on price. What you’re comparing [with a renovation] is a manufactured product that has risk still present within its manufacturing. When you buy a car, all that risk is being borne out of the manufacturing process, and is priced into the car. But when you do a renovation, it’s not. And so what you’re really comparing is a lot of different variables that are shifting, that are moving.
So a general rule of thumb– and this is what we’ve found our data has told us– whatever you think your budget is, we’ve found people are typically 1.4 times off the mark. So if you’ve got a $100,000 budget, you’re really looking at a $140,000 cost.
|Fred A. DeCicco, Esq.|
Partner; Real Estate/Commercial Law Department Director - Pollack, Pollack, Isaac & DeCicco, LLP
Fred has represented co-op and condo Boards, developers, and owners of major office and commercial buildings in Manhattan, and the metropolitan area.
[TBG] You’ve represented many condo and co-op boards over the course of your career. What are some common mistakes that homeowners make when applying for a renovation?
[FD] An issue which commonly happens with alterations is, people fail to realize that the building has the right to approve contractors. So I’ve had clients go ahead and hire people to do work, only to find out that the building won’t approve that contractor, or that contractor doesn’t have enough insurance to meet the building’s requirements. So now you’ve given a contractor a $10,000 or a $20,000 retainer, and now a month and a half later you’re finding out that the contractor can’t be approved, or there’s such delays trying to get that contractor approved– whereas if the owner had taken the time to reach out to the managing agent and get a list of approved contractors, get a list of the documentation needed beforehand, the homeowner would have more control over the process and the timing and the completion of the work.
[TBG] Do you have any general opinions on renovations, from a legal perspective? Can there any warranties made on a recent renovation to protect the buyer? For example, what if it becomes apparent that there are flaws in the construction, after the sale has already taken place? Are there any standard practices to protect the buyer from shoddy workmanship?
[FD] The general rule in New York is Caveat Emptor, which is Latin for “Let the buyer beware.” So the first rule is that there are no implied warranties; there are no implied guarantees. Anything that you are able to get as a buyer has to be negotiated, put in the contract, and specifically stated to survive the closing. So in your example where you have a recently renovated apartment and then the apartment is sold– maybe a professional who likes to fix up apartments and sell them is the seller– in that instance it would be incumbent on the buyer to try and find out what the guarantee of the contractor was, and get it assigned as part of the deal.
"Anything that you are able to get as a buyer has to be negotiated, put in the contract, and specifically stated to survive the closing."
The second situation is if the seller is an entity that did the construction, [in which case,] try to have certain aspects of the work guaranteed. But recognize that there’s no law that says something has to be guaranteed. To give you a classic example, people have made fortunes trying to buy abandoned buildings in neighborhoods that had urban blight over the years; they bought buildings with hundreds of violations, with no systems working. And nothing prevented that sale from going through. So the takeaway from this is, there is no guarantee or warranty unless your lawyer negotiates it for you as part of the transaction.
The Charleston Condominium
Robert has served as the Resident Manager to The Charleston at 225 East 34th Street for the past 7 years. He was named Resident Manager of the Year by the New York Association of Realty Managers in 2015.
[TBG] What are the first steps a homeowner must take to renovate in The Charleston?
[RA] The first step is of course hiring an architect and a contractor to see what has to be done in the apartment. What kind of permits have to be pulled? Are you moving gas lines, water lines, basic stuff like that. Then the next step would be filling out the alteration application. Once you fill it out, the contractor has to submit forms declaring what he’s doing, how he’s doing it, what material is being used. That gets submitted to the building’s architectural firm. Once that gets approved, the homeowners can start the work.
[TBG] What are the required qualifications for hiring architects and contractors? Does the board maintain a list of approved architects or contractors?
[RA] The unit owner does have a choice to use the building architect, and that usually speeds up the process. With that said, they can use anybody they want as long as they are licensed and insured. We’re trying to protect the residents. If you hire vendors that are not licensed and insured, then the unit owner unfortunately becomes liable for everything, and any kind of damage that could possibly happen. So this is a way of protecting unit owners. We do not force the unit owner to use any of the building-approved vendors. They can use anybody they like, but he has to be licensed and insured.
[TBG] Can you explain why it’s more expedient to use the building’s architect?
[RA] The building’s architect already knows the building from top to bottom. The plumbing plan, the electricals, the structural… they already have that because they know the building. We also do Local Law 11 with them, which is [the periodic inspection of] outside facade work. Anything that occurs in the building goes through the building’s architect. So this speeds up the process, because he already knows the building. But we never force it. Like I said, it’s up to the unit owner.
[TBG] And do you have a referral list of contractors you’ve dealt with in the past, that you recommend to residents?
[RA] I’ve been in the building for 7 years, so I have a relationship with 10 to 20 different contractors now. Some of them are used more often by residents due to the reputation of their work. So we’ve created an approved vendor list for the unit owners. But of course I still go to the vendor and I ask them to give me a bubble insurance for the building, which actually speeds up the process as well. Because now, you don’t have to ask the vendor, “Do you have a license? Do you have insurance?” It’s already on file with management.
"I have a relationship with 10 to 20 different contractors. Some of them are used more often by residents due to the reputation of their work. So we’ve created an approved vendor list for the unit owners."
[TBG] What are some popular renovations in The Charleston? Are applications for gut renovations common?
[RA] Not with this building, because this is a 10-year old building. So we haven’t had too many gut renovations. We did have a few in the past 7 years, and that’s of course [cases in which] a new owner buys and they want something different, they want to redo the apartment. We’ve also had unit owners that purchased apartments next door to them, and that was a complete gut renovation, because they merged the apartments.
[TBG] With regards to renovating, are there any unusual restrictions or allowances granted by The Charleston that might be of interest to a prospective buyer?
[RA] No; this is a very common condominium. There are no restrictions. Actually, there’s one unit owner that is thinking about buying the apartment above [his unit], and making a duplex. So again, there’s no restrictions, as long as it’s done in a safe and proper manner. Now, if you want to start moving structural items around– that might be unsafe of course, and the engineer might say no. But nobody’s done it here; nobody’s asked for that.