I recently had a question from a client who was deciding whether to remodel their home or sell.  The following  was my reply and some additional articles on remodeling versus selling.

Hello Paul and Sue,

· First and most importantly, what is your home worth? Is your house at the top price range, mid or low? If you are at the top, STOP! Think about how long you really want to stay in your home and if you can recoup the investment. If you are at the mid to low range…still ask yourself how long you plan to stay and if your remodeling plans will put you at the top range of your neighborhood. Rule of thumb-you never want to be the most expensive house on the block and remember people may love your home improvements, but they usually don’t want to pay for them. This can be a different if you live in a “highly desired” area.

· Second what type of remodeling are you going to do and is it worth the investment? Is it maintenance, such as window replacement, siding, roof etc…or are you adding square footage or remodeling a Kitchen or Bath? People expect maintenance on a property and even though it’s great to have new windows in your home, people don’t want to pay for them when they buy your home. People will however, pay for basic kitchen and bath upgrades and additional “useful” square footage. They usually  never pay for something that is “over the top” for your area. You will probably never recoup 100% of your investment if you sell too soon.

· Third do you love the schools, the location and neighborhood? There is something to be said about great neighbors. I think they are golden. Schools are also so very important. Are you going to be happy sending your kids to the schools in your community or are you going to go the private route or open enroll? If you want to stay and raise your kids here, maybe remodeling makes sense. However if you plan on moving in the future use caution when remodeling. You don’t want to use all your equity and then a couple of years later want to move.  Now you’re stuck, you owe too much and you have nothing to bring to the table for your next purchase.

Well that’s my two cents. If you would like, we could get together and run a market analysis of your home and neighborhood…see what’s happening and what your property is worth in comparison. That might give you a little better idea. Another thing you can do is go to EdinaRealty.com, Realtor.com or Zillow.com and do a home value guesstimate. They are not going to be 100% accurate, but they will give you a rough idea.

I also found a website www.remodelormove.com. I have never used it. It says it is free and will give an unbiased opinion on remodeling or moving. I am going to try it out and see if there is any hitch. I can let you know.

In addition I have found a couple articles that discuss remodeling vs. selling.

Article 1

Most homeowners will sooner or later give serious thought to remodeling. Recently, a homeowner contemplated doing a costly renovation to a small, two-bedroom home. The major expense was the kitchen, which was only marginally functional. For more space, walls had to be knocked out. The engineering that was required to do this ran the cost of the kitchen up to $100,000. Does it make sense to make such costly renovations if you don’t increase the square footage of the house in the process?

Before you can make a decision, you need to know the approximate current value of your home. The easiest way to get this information is to call your real estate agent and ask for a current market evaluation of your property. One quick phone call to your agent may be all it takes to decide whether or not to proceed with your plans.

For instance, one Oakland, Calif., homeowner paid $350,000 for his home six years ago. Without doing anything to the house, it would probably fetch $600,000 in the current market. If he were to proceed with the renovations at a cost of $150,000, he’d have $500,000 invested in the property-well below the current market value of the home in its present condition. The property will no doubt be worth quite a bit more after it’s remodeled.

A general rule-of-thumb for remodeling is to make sure that you don’t over-improve your home for the neighborhood. If the renovation tab in the above example were to escalate to $300,000, you could risk over-improving for the neighborhood. It’s not a good idea, from an investment standpoint, to improve your home to the point that it’s best house on the block. Market price is held back somewhat by the lower-priced homes on the block.

Your real estate agent can help you to determine if you will be over-improving for the neighborhood. Ask for comparable sales information for listings in the neighborhood that you foresee will be similar to your home after it’s remodeled. If the comparables sold for less than the amount of the current value of your home plus the cost of the renovation, you may be spending too much on the remodel.

Home Seller Tip: Keep in mind that you usually don’t recoup 100 percent on a major renovation if you sell immediately after the work is done. Just as it’s risky to buy a home if you plan on moving again soon, it’s also better to postpone a major remodel if you’re personal life or financial situation is uncertain.

The disruption of remodeling can be murderous on relationships. If the construction will take the kitchen and baths out of commission, consider moving to an interim rental for the duration. The cost of maintaining two homes should be factored into your budget.

Before embarking on a big remodeling project, find out what kind of home you can buy for the same investment. You may find that for the same amount you plan to invest in remodeling, you can buy a larger, more comfortable home that will provide more appreciation potential in the long run.

For instance, let’s say you own a two-bedroom home that’s worth $600,000. If you invest $100,000 in a kitchen remodel, you’ll still only have a two-bedroom house. If you can find a suitable three-bedroom replacement home for $700,000, you might be better off selling your home and buying the larger one.

The Closing: Don’t forget to take resale value into account when you remodel. It’s important to please yourself. But, from an investment standpoint, you should make sure that potential buyers will also think your improvements add value.

Article 2

The following are questions to ask yourself both in favor of remodeling or moving. Let’s deal with the remodeling first.

1. Your community is great, why move? For some homeowners they already live in the best community for their family and lifestyle. The schools are great, it’s near their worship center, shopping and they are plugged in with neighbors and the community. So instead of moving, it might be best to expand or remodel.

2. Sometimes, it’s just time to upgrade the house — even if you’re planning on selling in the future. If you bought a home with 15-year-old appliances and décor, it may be time to switch them out, now that they are 20 or 25 years old. I always get frustrated with homeowners who want to remodel right before they move — they’ve never had the opportunity to enjoy the house they’ve just remodeled. Upgrades may include flooring, bathrooms, kitchen, exterior facelift, paint, curtains, furniture — not just the house itself.

3. It might be cheaper than selling. If you need more space, the remodel may actually be cheaper than selling, especially if you’re looking at finishing or remodeling the basement. The basement remodel is the easiest and most affordable remodel available to homeowners because the exterior walls, plumbing and most electric may have already been run throughout.

4. You’re a do-it-yourselfer. Okay, you love those Old House, Fix-It or Nix-It, Saturday morning programs. Living in a dust-ridden environment with tools and power cords strewn throughout is your vision of heaven on earth. Go for it.

5. You’ll have to remodel the new house anyway. Most new homeowners spend upwards to 30 percent of the value of the new house they just bought fixing it up the way they want — so why move? Just spend that money where you are.

Now, there are just as many reasons to move instead of remodeling.

1. The move could take less time and hassle. Depending on the condition of your local market, you may be able to list, sell and move in a shorter period of time than it would take to actually remodel your current home. Time is a major factor in our busy lives, and many times it would be quicker to just move.

2. Remodeling would disrupt your lifestyle more than you’re willing to deal with. You have to hire a designer, then a contractor, move furniture from one area to another in your house, find storage for the rest, live with dust, workmen, etc., for several months and then HOPE you like what you get at the end of it. Better to buy the house that’s already finished the way you want it than betting on a finished product you’re not sure about.

3. You don’t want the hassle of dealing with contractors in case they don’t get it right. The challenge for remodelers is that they are being told by a remodeling-challenged homeowner what they want and then try to create that environment. If the homeowner doesn’t like it at the end — it’s very expensive to change once it’s done.

4. Remodeling could cost more than moving. For some people, to get what they really want, they would have to double their mortgage anyway — so it might be better to check out what’s available in new construction or even in a move up in the community. Plus, builders in some markets are starting to offer free upgrades — including rec rooms, decks, and other add-ons that usually are the subject of a remodel job.

5. Finally, you’re family has enlarged. You just may need a larger home because you have more children or your parents/au pair/adult children have moved in with you.

When it’s time to remodel, look over the local real estate market before making your final decision, it might be in your best interest to make that move instead of knocking down a wall.