Spending a lot of money on home improvement does not guarantee good return on your investment. It is important not to increase the value of your house beyond that of other properties in your area. Otherwise, you may price yourself out of the market.
What to Renovate
Small Renovations
Light renovations like painting or floor upgrades will pay you off well. They are inexpensive and effective ways to entice buyers. Other good investments (but more expensive) are renovations of kitchens and bathrooms.
These house areas attract lots of attention and can tip off buyer's decisions. When you renew them you will improve your chance of selling well and can get a decent return.
Large Renovations
Big ticket improvements may be necessary if the home could not sell without them.
When small living room or lack of extra bathroom discourage potential buyers you may have to undertake major renovation.
What to Repair
Your Contract
A written contract will protect you from consequences of unexpected events when your project goes awry. Without it you expose yourself to variety of risks related to consumer protection and liability.
This page provides general guidelines applicable to relatively simple projects. Contracts for more complex and expensive renovations should be reviewed by a lawyer with construction experience.
What information should be included ?
Parties which make the agreement
Warranty provided by the contractor
Work to be done by the contractor and subcontractors
Hidden Deficiencies - Sometimes the contract scope and terms have to be changed while work is already in progress. For example, deteriorated house elements are discovered and they will have to be replaced. The contractor will have to determine what additional work is needed and at what cost, and whether the project deadline has to be changed.
The older the house and greater the project size, deficiencies are more likely to be discovered. In such cases you should plan ahead for budgetary contingency to prevent your project from stalling.
Change Orders - They are used when homeowners change their minds about details of a project once work has begun. They may decide on work expansion into other areas of the home or change selection of materials. All amendments to the contact
have to be made in writing and signed by both parties.
How to Hire a Contractor
Finding Contractors
The best source of contractor leads are often friends, family and neighbours. If you know someone who has recently had work done on their homes, ask them about their contractor. Ask if the contractor lived up to expectations and delivered what was agreed. Learn if there were any problems and how they were resolved.
Visit the website of Home Builders Association to find contactors working nearby. If you are looking for a trade contractor determine if that trade has an association or a branch in your area. Membership implies professionalism and compliance with the association's code of ethics. However, keep in mind that these organizations do not serve a regulatory or licensing role, and you still should carefully check the references.
Have a look at the Yellow Pages and newspaper advertisements. Remember that the size of an ad does not reflect the quality of services. If you find a contractor you don't know anything about you have to take extra care while following up on references.
Conducting Interviews
Taking time in selecting your renovator who is right for you and your project will be a good strategy.
Select at least three candidates and arrange to meet with them to obtain the following information :
Business licence and liability insurance.
How long they have been in business, their experience doing jobs like yours and how their company operates (e.g., do they have their own staff or subcontractors).
References from at least three of the contractor's past customers where the work was similar to what you are planning.
Cost estimate of your project, and when it could be started and finished.
What ideas or suggestions they can offer to get better value for the money.
Interviews will let you determine your confidence level with each contractor. The relationship between you and your contractor becomes more important for larger and more complex projects.
Following References
Many consumers underestimate the importance of checking references. Don't worry about disturbing someone
because contact information has to be released with consent. While it is reasonable to assume you won't be directed to disappointed customers remember that 'the most satisfied' does not equal to 'entirely satisfied'. Even the best professionals have weaknesses and their customers can reveal them. If references can not be provided you should simply consider someone else. Finally, ask about professional memberships and check the contractor's record with Better Business Bureau.
Renovation Financing
Second Mortgage
If you already have some house equity you can use it as collateral for second mortgage to get extra funds. This option will add a new loan onto your existing mortgage.
When you borrow extra amount during your current term your old and new rates will be blended together into weighted interest on the total. Your mortgage payments will be adjusted to reflect the new principal and interest rate.
Homeowner Line of Credit
This is more flexible type of equity borrowing. It will give you access to approved credit amount whenever needed, at variable rates. You only have to pay monthly interest charges on the outstanding balance and you can make principal payments of any size at any time.
Both second mortgage and homeowner line of credit have higher rates than primary mortgages because lenders have to take greater risk.
Mortgage Refinancing
Refinancing is the process of repaying an existing mortgage and replacing it with a new one.
Some home owners refinance mortgages when interest rates drop so they can lower monthly payments or reduce the cost of borrowing by paying off faster.
Others use mortgage refinancing as another way to make use of equity they have built up in their property. This means that they negotiate a new mortgage - higher than they had before in order to turn equity into cash.
Choosing Your Financing
The key to successful renovation is to make it affordable. You should consider when and how much money you need, cost of borrowing and your ability to pay.
1. Project Length and Scope
Equity loan and mortgage refinancing are the best options for large renovations undertaken at one time, when you know the estimated cost and have to pay for the entire project at once. If you plan to stretch small renovations over longer time or you are not sure about the total cost you may resort to home equity line of credit.
2. Repayment Schedule
Home equity loan is paid off over a shorter period than primary mortgage. It will increase monthly payments for more intense 5-10 year repayment schedule.
If you don't plan to sell and need to keep your payments at affordable minimum for the next 5 to 10 years mortgage refinancing may be a better choice.
3. Cost and Speed
Home equity loans and lines of credit can be obtained without (or at minimal) closing cost and within few days.
Refinancing of the mortgage will take longer time to arrange and you will have to cover extra expenses including property appraisal and legal cost.
What are average returns on renovations ?
(Appraisal Institute of Canada)
Painting and decor (73%)
Bathroom (68%)
Floors (62%)
Family room addition (51%)
Basement renovation (49%)
Kitchen (72%)
Exterior painting (65%)
New windows/doors (57%)
Fireplace addition (50%)
New Furnace (48%)
What's the defence against construction liens ?
A lien can be placed on your property if a contractor does not pay to subcontractors.
You will be protected if you hire a company which complies with the requirements of the Lien Act in your province.
These laws require that you hold back a portion of the total job cost (10% to 15%) for a period of time (commonly 30 to 45 days) after the work is completed.
Suppliers and subcontractors who did not get paid must register their lien during this time. Your financial liability is limited to the amount of the holdback.
Check with your land registry office that no liens have been registered against the property before making a final holdback payment.
What if I choose the lowest estimate ?
The best price doesn't always mean the best deal.
Some contractors underestimate the real cost in order to get the job and then charge extras throughout the project.
Despite a low price you may end up paying more for the entire project than it was initially anticipated.
What's the risk of cash deals ?
You may loose your deposit when a dishonest contractor never shows up again.
You may not be able to get compensated for accidental damage to your home.
Homeowners may be held accountable if workers get injured on their property.
Resolving problems may be more difficult and expensive if the work is poorly done.
Construction liens can effect home owners when they hire someone without a written contract.
Home owner's responsibility to comply with permit and building code may likely be ignored by contractors who receive cash payments.
How is the project cost calculated ?
Fixed Price Contract is used for small repair or renovation jobs which are relatively simple and easy to plan.
It stipulates the total price for work, materials, subtrades and equipment rentals.
Cost Plus Contracts often apply to larger renovations when the exact amount of required work can't be precisely determined.
Final payment is based on the actual cost of labour, materials, subcontracted services plus the contactor's fee for managing the project.
This
contract should set out estimated cost and provide the maximum budget to prevent cost overruns.
Unit Price Contract is priced at given rates per a unit.
For instance, tile setters may charge per square foot for their labour and materials.
Small Renovations
What information should be included ? 
Parties which make the agreement