Undertake house hunting with remodeling budget and vision

Arizona's central highlands' town of Sedona is renowned for its dramatic red sandstone cliffs and lush forest. Ron and Tammi, a couple moving to Sedona, were surprised at how many homes took no advantage of potential views. One home on their agent's tour had a fireplace where view windows should have been, another had great views from the bedrooms but none from the living areas -- and homes with better views were too pricey.

The last listing they visited was a bit small at 1,650 square feet but did have lovely views. However, it had no landscaping or irrigation, poor yard drainage, and no bedroom was large enough for the home office their business required. Anyone else would have given up the quest at that point.

What you see is not what you get

Before                                                                                                   After

Ron and Tammi had watched many home-buying and renovating shows prior to their house-hunting trip. They were aware of the potential in some not-quite-perfect homes. There are usually a number of things you'll really dislike in existing homes. Yet you can get most of what you want from a well-located, structurally-sound, if otherwise-uninspiring home. Here's how:

1. Wear mental blinders.

Never expect an existing home's decor to be to your taste. When house-hunting, most decor is fluff, and seldom a deal-breaker since you probably are going to use your own furnishings. Items like dated carpets, countertops, and wall colors are bargaining chips for your price offer.

2. Examine the bones.

Concentrate on layout, room sizes, interior traffic flow, the potential for removing walls, signs of damage, energy efficiency, yard type and size, and whether the terrain creates good access for renovations.

Smart budgeting: your stress-buster

By setting a remodeling budget for renovations as part of your purchase budget, you can consider turning a so-so resale into the dream dwelling you've been seeking.

• Determine your maximum purchase price, then subtract about 10 percent. That 10 percent is your personalization remodeling budget.

• Allocate 20 to 25 percent of that 10 percent up front for the inevitable surprise expenses during renovation, especially with older homes. The older the home, the more expensive such surprises can be. Spending your maximum on the purchase price can leave you frustrated and underfunded for personalizing your home.

• Don't, don't, don't save money by eliminating a professional home inspection during escrow. In fact, you should insist on accompanying the inspector so you can ask questions and identify potential problems. House elements like the roof, foundation, electrical and plumbing systems, heating, air conditioning and energy-efficiency can blow your budget. Inspectors usually guarantee their findings for a year.

• Put aside money for renting back your present home or an apartment during renovations. Contractors can work more quickly on an empty home.

Ron and Tammi used the budgeting approach suggested above. Here's how it worked out:

1. Purchasing budget -- Ron and Tammi's true maximum budget was $450,000, but they told the real estate agent 10 percent less -- $405,000 including closing costs.
2. Negotiating the price -- The plain-Jane home with great views was only three years old and was listed for $360,000 after 14 months on the market. They negotiated a price of $345,000. The home inspection revealed no problems and, thankfully, covered the built-in microwave oven that malfunctioned eight months later.
3. Improvement budget -- Once escrow began, Ron and Tammi vetted building and landscape contractors. Their personalization budget was $45,000 minus $8,000 for unexpected problems, leaving $37,000 for their wish list.

How well did their remodeling budget work?

Did they stay within budget and end up with the home they envisioned?

1. Home office expansion -- The 8-by-12 home-office expansion to the front bedroom involved higher-than-average costs for moving the wiring and electrical service panel eight feet; and for re-engineering the compound roof over the room extension. The addition also specified two external hose bibs and a rear door and step. The project cost came to about $21,000.
2. Landscaping -- Drainage issues were mitigated by filling, compacting and grading the front yard and adding a river-rock drainage swale. With plants plus a whole-yard, drip irrigation system the landscaping totaled roughly $10,000.
3. Extras -- The office and landscaping had no unexpected expenses, so Ron and Tammi replaced carpet and vinyl floors with beautiful engineered wood floors in all but the bedrooms. Price was approximately $12,000.
4. Bottom line -- These renovations totaled $43,000 of the original $45,000 budgeted. The $2,000 remaining covered renting back their old home for two months during the renovations.

The home's price of $345,000 plus $45,000 in renovations totaled $390,000 -- $60,000 less than their original budget. Ka-ching! They decided to get settled for a few months before doing additional renovations.

By looking beyond zero curb appeal and the lack of home office space and by working within their budget, Ron and Tammi now relish their home in the red rocks. With savvy budgeting, informed house-hunting and reliable contractors, you can confidently tear a page from the same book.