COVID-19 has radically changed our relationship with home. While no house is perfect, now that it's also the office, classroom, fitness center, and everything in between, whatever deficiencies we overlooked in the past are becoming harder to ignore. This has led to a spike in both sales and home renovations. But how do you decide which is best: to renovate or relocate?
Start with Why?
What is the source of your discontent? Is renovation a feasible option to achieve your goals? Some goals are not economically or physically possible with renovation. Changing the layout or flow of your existing home or adding new rooms may not be possible due to structural limitations or zoning restrictions.
Even if it’s physically and legally possible the cost might be prohibitive. If you need more space or more rooms than you currently have moving might be your best option.
If your concerns are mostly cosmetic: new floors, paint, countertops, or cabinetry, staying put is certainly the answer. Even more extensive work like new kitchen and baths may tilt toward renovation.
Not happy with the school district? Don’t like the architecture? Do your neighbors host all-night raves in the backyard or run a commercial composting operation? No amount of renovation is going to fix these flaws.
What are the costs?
Either option will have significant costs. The cost of remodeling seems obvious with direct materials and labor. But as soon as you go beyond the most superficial projects you will likely require building permits and possibly architectural or engineering drawings. These “soft costs” can be considerable. And always add a 20% contingency to your budget, and be prepared for more. Opening up walls and floors can be like pulling a loose thread and projects can escalate quickly.
Also, consider whether you can live in your house while the renovation is underway. If not, factor in the cost of a hotel or other temporary living accommodations.
Transaction costs for selling and buying a home are not small either and include fees for brokerage, title and escrow, lenders, inspections, as well as county and local transfer taxes. To maximize the value of selling your home often requires some minor renovations as well. And if you’re trading up in value you have to consider the increase in property taxes, and possibly operating costs.
Lastly, you have to consider the financing cost of either option. With record levels of home equity and historically low interest rates, the availability and cost of financing have improved considerably. Home equity lines of credit are the most common method of financing renovation projects. These are short-term loans with adjustable rates, whereas most mortgages are fixed rate with a term of 30 years.
Can you hack it? (The Emotional Cost.)
Money aside, the potential emotional cost could be the deciding factor. As a Realtor, my entire practice is geared to minimize your stress buying or selling property. I like to say I’m your real estate Sherpa, carrying the heavy load while guiding you to the summit. But, it’s still your mountain to climb and it’s never stress-free. Perhaps more important is the move itself. Survey after survey rank moving as one of the top 5 most stressful activities in life.
But don’t underestimate the stress and anxiety associated with a major renovation project, on you, your marriage, and your family. It may entail sustained disruption to your life, and decisions on cost, design, and materials have to be made often on short time frames; decisions you’ll have to live with for years to come. Even in the strongest relationships, it is rare that everybody is always on the same page. Major remodels generally require at least one person to be deeply involved on a day-to-day basis. It can be a life-consuming process.
Where is the best return?
On a purely financial basis, you’ll generally do better trading into a new house. National statistics show that most home renovations return less than 100%. The calculus may be a little different in markets such as the Bay area where remodeling costs are less relative to home values, but when it comes to resale value sometimes it’s the least sexy projects that get you the most return. Buyers often shy away from homes with older or failing major components such as roofs, foundations, or other structural deterioration, and these weaknesses will overshadow a shiny new kitchen or bath. But these projects are expensive and do very little for your day-to-day quality of life.
* * *
And your quality of life is really what it’s all about. Once you solve the financial side of the equation the answer comes down to what will make you and your family happier in the long run. So, start with a deep dive into your needs and desires for a change; what are your must-haves and what are nice-to-haves. Once that’s clear it will be much easier to weigh the pros and cons of renovation vs relocation.