- The Washington Times - Friday, August 28, 2009

It’s always been tough for homeowners to decide whether to remodel their current home or move to another one that better meets their needs. In addition, the current housing market makes it impossible for some homeowners to move right now.

“Financially, the answer about whether to move or remodel changes based on the market, but the questions homeowners need to ask themselves don’t change,” says Dan Fritschen, author of “Remodel or Move? Make the Right Decision.”

Mr. Fritschen says an economist making a strictly financial decision might suggest moving. While people may have to sell a home for less money, they can buy a larger or higher quality home for much less than in previous years.

“In the heyday of the hot real estate market, the value of someone’s home in most markets was higher than in today’s market, but so was the cost of remodeling,” he says. “Today, the value of homes has dropped, but the cost of remodeling has also dropped by about 20 percent.”

Donald Lynch, president of Lynch Construction Inc. and the Home Builders Association of Maryland (HBAM) Remodelers, says the most important question for homeowners to answer is whether they like the area where they live.

“If someone likes their neighborhood but dislikes some features about their home, it might make more sense to remodel than to move,” Mr. Lynch says. “But consumers also need to give some thought to how long they intend to stay in their home. If they are expecting to move within a few years, it may not make sense to spend a substantial amount of money on remodeling.”

Financially, homeowners need to investigate the cost of remodeling and evaluate the potential appreciation in the home’s value after the work is complete. Balanced against that financial calculation should be the anticipated cost of moving.

Craig Smith, chief executive officer of ServiceMagic Inc., says homeowners need to sharpen their pencils to evaluate the costs and benefits of each possible action.

“The first consideration should be whether they are committed to their neighborhood. A major remodeling job should only be undertaken if you intend to stay in the home for five to 10 years. There is no financial benefit in the short-term for a large project,” says Mr. Smith.

On the opposite side, homeowners need to estimate the cost of moving.

“If you choose to move, you need to include the cost of the real estate transaction - which averages 6 to 10 percent of the value of the home including real estate commissions, taxes and closing costs. Homeowners need to determine how much they will spend to move and ancillary expenses such as making small improvements to their current home to make it sell faster and the need to buy new furniture or window treatments for the new home,” says Mr. Smith. “Then they should estimate what they need to spend to maintain and improve their current home to make a cost comparison.”

Mr. Smith points out that the emotional aspect of homeownership is extremely important.

“Homeowners should think carefully about their neighborhood, including schools, parks and commuting distance, because those aspects are an important part of the quality of life,” says Mr. Smith.

Mr. Fritschen says homeowners can start their calculations either with a remodeling estimate or with an estimate of what they can afford to buy, as long as they are comprehensive in their discussions. Consumers can use a free Remodel or Move calculator available at www.remodelormove.

com to determine which option might be better for them.

“If you are emotionally attached to your home, it might make more sense to stay, but if you are not in love with your home it could be better financially to sell it and move on,” says Mr. Fritschen. “You need to look at your floor plan because if you don’t like it, it usually will just be expensive to change it and won’t add value to your home. But if you love your neighbors and your neighborhood, it might be worth it.”

Mr. Fritschen says that homeowners should call a contractor to get an estimate for a potential remodeling job. He also recommends contacting a real estate agent to get an honest opinion of the current value of your home.

“If you move out of a $500,000 home, it could cost you as much as $50,000 in commissions, repairs and moving fees,” says Mr. Fritschen. “If you spend $50,000 to remodel your home, you can get an appreciation in your home’s value for part or all of the cost.”

Mr. Smith says consumers can look at the annual Cost-Value Index from Remodeling magazine (www.remodeling. hw.net/2008/costvsvalue/national.aspx), which analyzes how much homeowners will recoup from an investment in their homes.

“A midrange kitchen remodel can recoup about 70 or 80 cents on the dollar,” says Mr. Smith. “Generally, kitchens and baths are the best investment, but homeowners should think about how much they truly need to do to create the quality of life they are looking for. Homeowners today are seeing reduced returns on their investments due to the housing slowdown, so many are opting to shift to making smaller improvements such as replacing the countertops instead of a full-scale kitchen remodel.”

Mr. Lynch says that one of the most cost-effective remodeling projects is to add a master suite, which will bring a 71 percent return. In other words, spending $90,000 to add a master suite will eventually add about $60,000 to the home’s value. Mr. Lynch says that replacing standard siding with new fiber-cement siding will bring an even higher return on investment of 91 percent.

Homeowners concerned about the resale value of their homes need to make sure their home is comparable to other homes in their neighborhood.

“You don’t want a $1,000,000 home in terms of either size or aesthetics in a neighborhood of $250,000 homes,” says Mr. Smith. “Home values relate to comparable homes in the market, so you can only get back so much of what you put into your home based on the surrounding homes. Upgrading to a gourmet kitchen may help your home sell faster, but you are less likely to get your investment returned if you upgrade beyond the level of other homes in the community.”

Mr. Fritschen says homeowners should discuss with a Realtor the issue of “over-improving” for their neighborhood, since agents often are knowledgeable about which area homes have been remodeled.

“If you already own the largest and nicest home in a neighborhood, then there really is no investment value in remodeling since your home is not likely to appreciate even more,” says Mr. Fritschen. “But if you remodel a less valuable home to be average or moderately above average for the neighborhood, that’s always acceptable. For example, if you have two full baths and the others in your community have three or four, it’s always a good investment to add a bath.”

Mr. Lynch says he has worked with some customers who want to stay in their neighborhood and are willing to spend money even if they do not anticipate getting a return on their investment.

“If they can afford it, homeowners often decide to spend money just to create a home that makes them happy,” says Mr. Lynch. “In a couple of cases, homeowners have spent a lot of money to add an in-law suite or other addition that substantially increased the size of their home. They know they won’t recoup that investment in the short haul, but eventually, in 10 or 15 years, they may see some of the money come back in terms of a higher value for the home. They intend to stay in the house that long, so it makes sense for them.”

Regardless of the size of the project, homeowners need to spend the time getting recommendations and investigating potential contractors to be sure they get their money’s worth from the remodel or renovation.

“Clients need to do research to find a good contractor rather than working with a contractor who just tells them what they want to hear,” says Mr. Lynch. “There are contractors who are willing to work for cost, but they will take shortcuts that can eventually burn the clients.”

Mr. Lynch says that contractors will usually charge a fee for the design process and then credit back half the fee at the contract signing.

“People spend lots of time in their kitchens and baths, so those are the rooms that are more likely to bring a return on investment,” says Mr. Lynch. “But homeowners can work with a contractor who understands value-engineering a project so they don’t overspend. You can choose to install a ‘Level One’ or a ‘Level Six’ granite and still get a similar effect, or you can choose ceramic tile flooring instead of travertine to save money.”

Pulling together reasonable estimates for both a remodeling project and selling and moving takes time, but wise homeowners will consider all the facts - and search their hearts - before making a final decision on this complicated question.

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