Kim and Bob Stetson loved their 1920 Tudor in Old Palo Alto. Since they bought the home in 1996, they'd added on to make room for Kim's mother, raised their two children and enjoyed the quiet, tree-lined street.
But when they finally decided to part with the family home, they realized it wasn't in such great shape, and as they were approaching retirement, they really didn't have the cash to fix it up.
Their greatest fear was someone would buy it and tear it down.
"We wanted to protect the house," Kim said. "At the same time, we realized, if (we are) selling and anything appears as an immediate flaw to the buyer, they'll want to discount the price. We really did want it to be turnkey."
Soon they were in deep discussions with Stuart Morgan, who had earlier worked with Kim at a Palo Alto advertising firm and whose son had grown up with theirs. Morgan was now a contractor with FYI Properties in Walnut Creek.
They'd stayed in touch over the years and the Stetsons were aware that Morgan's firm had been actively rehabbing and "flipping" houses recently.
What they came up with was a plan where Morgan guaranteed an "as-is" sale price; his firm would then do the major renovations, plus cover the mortgage, utilities and taxes during construction; and then the house would be sold and any "profit" would be split.
"The tricky thing was to agree to an 'as-is' price," Bob said, adding that they spoke at length to at least three agents (who came up with a range that varied by only $17,000, Kim added).
"We felt what we picked was equitable and fair," Bob said.
That magic number was $2.9 million.
Next came deciding on just how much to change. While the Stetsons argued fiercely to keep as much of the Tudor sensibility on the outside, Morgan countered with wanting to modernize the interior.
Ultimately, they painted the exterior, installed a new lawn and other landscaping and added a short front fence, a new stamped-concrete driveway and a new roof.
The inside was a completely different story.
"It was very compartmentalized," Bob said. "(That's) what we were trying to undo. The way we live today is open."
But some rooms were sacrosanct, especially the living and dining rooms.
"The living room was huge," Kim said.
"That's what sold us on the house in the first place, with its dramatic iron beams and high, pitched roof," Bob chimed in.
The biggest change was to the kitchen, which was opened to an adjoining room to create a family room/kitchen. A powder room was added for guests downstairs, plus the original bathroom was moved to create an en-suite bedroom space.
In addition, Morgan made the garage into a usable studio/office/teen space and added a deck in the backyard.
"Stuart is a very talented designer; he knows spatial design (and) he adores transitional architecture," Bob said. That means taking things that look like a certain period but updating them so they still fit in but seem modern, Kim added.
Morgan suggested the use of hexagonal tile, herringbone accents, subtle plaster effects on the walls and wrought-iron light fixtures, as well as Carrera marble and subway tiles but in glass, rather than ceramic in the kitchen.
"We also decided to push our budget just a little to bring in crystal door knobs/handles to match many of the existing ones, and other small but important detail items such as wall sconces, gooseneck Grohe fixtures and frameless glass shower enclosures to complete the higher-end look," Morgan wrote in an email.
Plexiglas panels were installed on the rear deck, ensuring the view wasn't blocked.
All told, Morgan put up about $230,000 for the renovations, plus another $45,000 for household expenses during the three-month construction. For the rapid project completion, Bob credits the contractor with being familiar with Palo Alto's building process and assigning close to a dozen workers to the house each day.
When completed, the Stetsons sent out a request for proposal to find a Realtor; with experience in advertising, they wanted someone who could offer a detailed plan for selling their home.
"We made it very clear ... we wanted to see something creative," Bob said. "We asked about the language they would use to describe the house."
After interviewing several candidates, they chose Tom LeMieux from Pacific Union International in Menlo Park.
The house ultimately sold for $3.375 million, about $200,000 over the "as-is" price, plus contractor's costs, which were split between the Stetsons and the contractor.
"The house is everything we hoped the new family would ever need," Bob said. "They seemed to fall in love with it. It was like a family member to us."
The one danger that could befall this kind of arrangement, Bob added, was that they could have loved the renovations so much that they'd want to keep the house.
But, Morgan pointed out, they had lots of equity and no ready cash to pay for the improvements without selling the house.
And, Kim acknowledged, they were very ready to not be responsible for the upkeep on a four-bedroom, four-bath house.
Several years ago they bought a condo in Los Altos, as a test for their ultimate downsizing. But a few months after selling their Old Palo Alto Tudor, they found a fixer-upper in San Jose's Willow Glen neighborhood.
"It's a dog," Bob said. But "it has a lot of potential," Kim added.
They've already called in Morgan to do the renovation design, but will be using a more local contractor for the actual construction.
Bob said their experience could be seen as a model for others who've built up equity but don't have ready cash to make quality improvements.
"It's not something that a lot of people would intuitively know to do," he said.
"As-is" price ($2,900,000) + Improvements ($230,000) + Expenses* ($45,000) = Total costs ($3,175,000)
*Expenses included mortgage, utilities and taxes during renovation period.
Final sale** ($3,375,000) - Total costs ($3,175,000) = Profit ($200,000)
**Sale price minus Realtor's commission.
This article appeared in print in the Fall Real Estate 2015 publication.