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Home Improvement 2006  

Planning it out

  The success of any remodeling or improving project may depend on planning from start to finish.
Should you remodel or move?

It's a question as old as cave dwellings: Should we stay put and remodel or move to a new place?

There are perfectly good reasons to stay put, of course. You love your neighborhood. The schools are great. You enjoy the short commute. It's "home" in all the best senses of the word.

In many cases, remodeling can remove the annoyances that crop up as your family grows. Extra bathrooms can eliminate the morning line. New countertops, cabinets and fixtures can make an old kitchen new again. Energy-efficient windows, doors, insulation and HVAC systems can help a project pay for itself in lower energy bills, especially if they figure into your remodel anyway.

But there are limits to what a remodel can accomplish, says Steve Melman director of economic services for the National Association of Home Builders.

"Many homes are not built to be flexible, so you really couldn't add on that third or fourth bedroom easily without spending a fortune and changing the whole style of the home," he says. "I think a lot of people don't want to put up with that."

The cost of holding
On the other hand, housing consultant Robert Sheehan, in an eye-opening 1998 survey, found that the cost to keep a typical home up to standards over 30 years was almost four times the home's purchase price. Sheehan says he expects only a slight change (owing to the bubble effect) when he updates his findings this summer. The fact is it's getting more expensive to stay put.

"Construction costs have been relatively stable until recently, but with the hurricanes there are shortages of timber, gypsum board, even cement. There is a worldwide competition for raw materials now with the Chinese and India. There are going to be more and more pressures facing homeowners," he says.

If your home is 10 years old or older and facing big-ticket items like a new roof or HVAC system, these also may factor into your decision to remodel or move on. Keep in mind, however, that experts estimate that the cost of moving can run 8 percent to 10 percent of your current home's value for real estate commissions, closing costs and relocation, according to the American Homeowners Foundation.

The bubble effect
The move-versus-remodel dilemma has taken on added significance in recent years, as consumers retreated in droves from the stock market following the dot-com collapse and invested instead in the last bullish market around: real estate.

Baby boomers suddenly flush with the historic generational transfer of wealth not only fixed up the old homestead but also bought a second, third and fourth as investments. That spike in demand led in part to skyrocketing home appreciation in many parts of the country, fueling fears of a real estate bubble, especially on the coasts.

As the seemingly satiated bull market slows this year from a stampede to a swagger, homeowners find themselves flummoxed. We've always been taught to buy low and sell high, but what do you do when the choice is to sell high but buy higher? What if you buy up and the bubble bursts?

"We have a Catch-22 where people are afraid to sell their home for fear of not being able to find another," says Walter Maloney, spokesman for the National Association of Realtors.

New York real estate broker Barbara Corcoran agrees: "There is fear that if they pay the money it takes to get it, they might not see that money come back. I don't think it's founded, but I wholeheartedly agree that's the attitude."

Strictly from a financial perspective, the scale may be swinging toward holding and improving instead of buying and flipping.

According to the January 2006 remodeling activity indicator from Harvard's Joint Center for Housing Studies, or JCHS, Americans spent $149.5 billion on home improvements in 2005, a 4.3 percent jump from the previous year. A December 2005 Trusted Choice survey (commissioned by the Independent Insurance Agents & Brokers of America) found that nearly one in four homeowners, or 27 million, said they had significantly remodeled their homes in the last three years.

-- Posted: April 12, 2006
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