You’ve been in your house for a while and are still fond of the place. But it’s no longer exactly what you need or want.
So, do you put the home up for sale and move out — or upgrade and settle in for the long haul?
To answer that question, you’ll have to think about your emotional attachment to the house, whether renovating will bring a good return on your investment and whether you can afford to buy a replacement home. These and other factors will help you make your choice.
Read on for what experts believe are the essential issues when deciding whether to remodel your current place and hunker down, or buy a different home and move out.
Your emotions will have a lot of say in whether you stay or go.
“Think honestly about your relationship with your neighbors and how you feel about your location and the surrounding area,” says Fred Wilson, a principal with Morgante-Wilson Architects in Evanston, Illinois. “If you have a strong connection to the neighborhood and emotional ties to your home, renovating may be the right answer.”
Wilson’s firm estimates that 70 percent of homeowners in the remodel-or-move quandary ultimately decide to stay put and make changes to their house to address their changing needs.
A residential architect may envision upgrade possibilities you may not see and help you get maximum functionality out of the home you already have. You might tap your home equity to pay for the improvements.
The result can be “the best of both worlds — a home that fits your lifestyle, located in a neighborhood you already love,” Wilson says.
Realistic budget planning and analysis are critical when pondering whether to make your current home work or look for another one.
“This should include thinking far down the road. How long will you keep the home if you remodel it? ” says David Wirth, a financial adviser with Savant Capital Management in McLean, Virginia. “Talking and putting in writing one’s goals is such a valuable tool for identifying the financial risks associated with dreams and aspirations.”
Budgeting accurately is essential if you do decide to renovate.
“A lot of homeowners don’t know exactly what they want,” says Prashanth Pathy, an agent with Keller Williams Realty in Chicago. “Say they have $50,000 and the contractor says he can do it for that. But then their wishes change, they want different materials, it doesn’t come out as they imagined — and that’s where the budget gets blown up.”
Many homeowners base their decision to sell on the need for more space. But a smarter layout that adds one more room but not more square footage can help some homeowners avoid moving, says Doug Perlson, New York City-based founder and CEO of real estate brokerage RealDirect.
“A spacious three-bedroom home can often be reconfigured to four bedrooms and allow a family to have a more efficient layout without needing to leave the home they love,” he says. “We recommend laying out your floor plan with a designer and seeing if a reconfiguration could make sense. It is often much less disruptive and expensive than a move, and may solve your problems.”
If you can’t find a spot for a new room? “Maybe it is time to sell,” he says.
Does your current home have what you consider to be a really serious problem? It could be neighbors you can’t tolerate, a not-so-great school district or a cramped physical setting — including home and yard — that will never meet the needs of your growing family.
If that’s the case, you really have just one choice: Move.
But maybe the issue is that you essentially can’t afford the home you currently have, so a downward rather than upward move is necessary.
This is fairly common. The most recent “How Housing Matters” survey from the John D. and Catherine T. MacArthur Foundation found that more than half (53 percent) of Americans struggle to make housing payments and have had to make sacrifices or trade-offs to cover those costs.
If your mortgage rate is a source of pain, shop around for a lower rate and refinance.
Many people overlook the fact that renovation involves “a serious, long-term commitment in time and energy,” says Pathy, of Keller Williams. “They have to get their head around the process — time being the first and foremost consideration.”
He’s not kidding.
A kitchen remodel involving new countertops, cabinets, appliances and floors can stretch on for three to six months. If ductwork, plumbing or wiring has to be addressed, the job could take longer. A bathroom remodel can require two or three months, while a room addition can take a month or two.
Pathy says you have to be ready to be very patient. “It’s very difficult to live in something that’s being renovated,” he notes.
Before opting to remodel or sell, try to determine what return on investment you’ll see on either option. So says Brian Davis, who has bought, renovated, leased, managed and sold many homes and is director of education for Spark Rental.
If upgrading, “What’s the average return on investment for the renovations you’re considering?” he asks.
Most home upgrades do not pay for themselves in the form of a higher eventual sale price. Some renovations manage to recover 80 percent to 90 percent of their costs, while others barely cover half their expenses.
If you’re thinking of listing your current home and buying another one somewhere else, ask yourself whether you’ll be in the new place long enough to recoup the costs of taking out a new mortgage and moving. Davis says it has traditionally taken seven years to earn back those upfront costs.
Weighing against renovation is the risk you’ll “over-improve” your home compared to others on the block.
An over-improved home won’t sell for as much in its location as it would in a neighborhood with similar houses, says Kevin Lawton, a real estate agent at Coldwell Banker Schiavone & Associates in Yardville, New Jersey.
“When you are in a neighborhood that has starter homes and smaller homes, adding a large addition or doing an extensive renovation may not yield the return one would expect,” he explains.
With one of Lawton’s listings, sellers had added a large, handsome fifth bedroom suite to the first floor. Buyers passed on the house for smaller ones in the same development, and the house lingered unsold even after the sellers chopped $30,000 off the price.