Hydrophobic magnetite nanoparticles synthesized from thermal decomposition of iron salts must be rendered hydrophilic for their application as MRI contrast agents. This process requires refunctionalizing the surface of the nanoparticles with a hydrophilic organic coating such as polyethylene glycol. Two parameters were found to influence the magnetic behavior and relaxivity of the resulting hydrophilic iron oxide nanoparticles: the functionality of the anchoring group and the protocol followed for the functionalization. Nanoparticles coated with PEGs via a catecholate-type anchoring moiety maintain the saturation magnetization and relaxivity of the hydrophobic magnetite precursor. Other anchoring functionalities, such as phosphonate, carboxylate and dopamine decrease the magnetization and relaxivity of the contrast agent. The protocol for functionalizing the nanoparticles also influences the magnetic behavior of the material. Nanoparticles refunctionalized according to a direct biphasic protocol exhibit higher relaxivity than those refunctionalized according to a two-step procedure which first involves stripping the nanoparticles. This research presents the first systematic study of both the binding moiety and the functionalization protocol on the relaxivity and magnetization of water-soluble coated iron oxide nanoparticles used as MRI contrast agents.