Remodel or Move: Does it Make More Sense to Stay or Go?
Written by: Lankarge/Nahorney for HomeInsight
Sooner or later, many of us who own homes must decide whether it makes more sense to remodel or move. This decision, which can have enormous financial and emotional consequences, is not often easily made.
Let's say you own a home that you really like but you absolutely must have an updated kitchen. You contemplate knocking down one dining room wall and opening up the space for both cooking and entertaining. Several contractors estimate this work will cost you from $100,000 to $150,000. Once you're done, you'll have the kitchen of your dreams, but this remodel does not increase the square footage of your home. It will also leave you with a monster kitchen that is more upscale than the rest of your small, two-bedroom home.
Should You Remodel?Are you unhappy with the schools in your neighborhood? Is your job stable or might you need to relocate within the next few years? Keep in mind that you usually don't recoup 100 percent of your remodeling investment if you sell immediately after the work is done. It makes sense to postpone any major renovation if your personal and financial life are in a state of flux or you're not sure how long you want to live in your neighborhood.
Some questions to ask yourself:
Does it make sense to proceed? Or should you take that money and start looking to trade up to a newer home with a larger kitchen?
Before you can make that decision, you need to assess your situation. What is your current home worth? One way to get this information is to ask a real estate agent or appraiser to do a "comparative market analysis," or CMA, of your home. A CMA looks at such variables as the asking price, the selling price, and length of time on the market of several homes that are comparable to yours in your neighborhood. This will give you an idea of approximately how long your home will be on the market to fetch your asking price. See what houses similar to yours are selling for in your neighborhood and how long it took to sell them.
Your next step is to determine the cost of the home improvement you are considering. There are a couple of ways to do this. You can contact several reputable, licensed contractors and ask them for estimates. You can also use remodeling industry and consumer sources to help give you a ballpark idea of what your renovation may cost.
See a list of contractors in your neighborhood.
Once you have these figures, determine whether the houses that are comparable to yours sold for less than the amount of the estimated current value of your home plus the cost of the renovation. If so, you may be spending too much on the home improvement and you may want to consider moving instead.
The Case for Remodeling
Homeowners who love their homes, their neighbors, and their communities most often remodel because they already have everything they want - except for some feature such as master bedroom suite, a sundeck, or updated bath. One main advantage of remodeling is that you only need to change one or two things to suit your needs. If you move, you run the risk of not liking one or more features of your new home, yard, or location and you run the risk of having to make many compromises to finally settle on your new home. After doing their homework, may homeowners decide it's cheaper to renovate what they have than to buy or build something comparable.
The Case for Moving
Despite the current home improvement boom, remodeling is not for everyone. First of all, not every renovation is worth the time, money, and effort. If you own a two-bedroom ranch on a half acre, but you fantasize about a four-bedroom Victorian with a large lot lined with stately trees, you're unlikely to be happy no matter how much you remodel. Secondly, if you are contemplating a move in the near future (within 24 months) because you're tired of a long commute, you want to be closer to better schools, or you prefer a safer neighborhood, then it might be better to start looking for a new home now. Find a list of the major employers in a different location. Find out the rate of high school seniors who go on to a four-year college in the new neighborhood you're considering. Compare the crime rates of your present location with a new one.
Consider All the Factors
There are myriad hidden costs associated with each decision. You must evaluate all the costs of remodeling versus the costs of moving. See what a new mortgage versus a cash-out refinance or a home equity loan will cost you.
If you do move, don't forget you will have to factor in a sales commission on the price of your home, any repairs you need to make, as well as money spent on a moving truck or storage rental.
If you do remodel, you will need to add the costs of surviving the renovation, including any hotel stays or take-out meals while the work is being completed.
And don't forget to factor in your taxes. Whether you buy up to a bigger house or remodel your home, your property taxes are likely to increase. See what the property taxes are for homes with the features you want in the locations you want to live in.
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