As our lives progress and major life events happen — a new baby, a health setback, the loss of a job — it’d be nice if our homes took a cue and morphed into just what we need at the moment. What seems like enough space at one time can quickly get cramped, as can an empty nest with echoing bedrooms and too many stairs.
People who sold their home in Q2 2020 had owned that house for an average of 7.95 years, a report from Attom Data Solutions shows. But a poll of 1,000 Americans from Neighbor.com reveals that 1 in 4 U.S. households outgrow their home within two years. That leaves about a six year gap where you and your family contemplate a tough decision: Should we remodel, or move?
“If I have somebody who’s undecided, we try to do a thorough interview with them. Find out why they want to sell. What would happen if they didn’t sell? Is it something that they have to do, or something that they want to do? Then we’ll go out and take a look at the market. Is there a home out there that’s going to fit what they want? Every situation is different. It’s really all about what’s going to be best for them.”
Let’s review some of the other key factors Hussey likes to review with clients and that can help you make a decision you’re happy with.
Signs you should sell that house and move
Given the choice, about 76% of Americans in one survey said they’d rather make upgrades to their current home than move. “My house is not ‘just a thing.’ It is an extension of my physical body and my sense of self that reflects who I was, am, and want to be,” wrote Dr. Karen Lollar in her article for Qualitative Inquiry, a peer-reviewed academic journal.
Overtime we develop an emotional attachment to our homes and associate it with memories and moments that can be hard to let go of. But sometimes moving is the prudent choice, both from a logistical and financial perspective.
If more than a few of these factors ring true to your situation, put the for-sale sign out:
You’ve lived in your home long enough to build up some equity.
The beauty of homeownership, and the reason experts consider it a core wealth-builder for Americans, is that you build equity over time. A portion of each diligent mortgage payment goes toward your principal balance, increasing your stake in the property. On top of your principal balance, property values historically increase over time, and you reap the benefits of that upside.
According to Black Knight, a longstanding real estate and mortgage analytics company, annual home price growth has seen a 25-year average of 3.9%. In September of 2020, Black Knight reported a staggering 14.2% increase in home prices, far above the 25-year average. Between 2010 and 2020, borrowers gained over $6 trillion in equity, a report from CoreLogic shows.
To calculate your approximate home equity, we recommend starting with a tool like our Home Value Estimator to get an idea of your home’s value. Then run the following calculation:
- Take your Home Value Estimate
- Subtract your mortgage payoff
- Subtract 5.8% for agent commissions
- Subtract for title and escrow fees (~1%)
- Subtract any additional selling costs, such as relocation fees
To make the math easier, HomeLight offers a handy Net Proceeds Calculator to help you better estimate the cost of selling our home and the net proceeds you could earn from the sale. In addition, your agent may prepare what’s called a net sheet for you, which can help you account for any local fees and costs specific to your area.
As you think about: “Should I remodel or move?” — a calculation like this illuminates what you’d miss by staying put: The chance to trade-up with a sizable down payment? The opportunity to afford a neighborhood you like even more?
You haven’t accumulated a lot of wealth outside of your home equity.
Researchers at the Federal Reserve Bank of St. Louis in one survey found that the median U.S. household had 68% of its wealth tied up in its primary residence — with few liquid assets such as savings, checking, and money market accounts. (Incidentally, more than 35% of families reported having no residential wealth.)
Having few or little liquid assets means that you don’t have money readily available for renovations, unless you tap into some form of home equity loan. This allows you to borrow against that market value you’ve accrued, but that also means you put up your home as collateral.
How much savings you need for a remodel depends on the level of work required to elevate the house to your liking. The average room addition costs between $20,000-$70,000. That’s why homeowners who seek a roomier abode often decide to move: Our survey of over 2,000 real estate agents nationwide in Q2, 44% of respondents cited a need for more space as the top moving motivator.
Favorable market trends offer an opportune moment to sell.
“How’s the real estate market?” can be a light cocktail party conversation starter or the key to your decision over whether to remodel or move. Our guide to staying on top of your local housing market offers a few easy ways to get a sense for whether it’s a buyer’s or seller’s market:
- Reach out to a reputable local real estate agent for their opinion. Ask about some of their recent sales and trends like inventory and buyer demand.
- Do a Google search for your local real estate association, many of which offer quarterly or monthly market reports on your local area. You should be able to see price trends and months supply of inventory (less than 6 months of inventory indicates a seller’s market.)
- Check out comparable sales — i.e., homes similar to yours in location, size, and condition — on property websites to get an idea of where prices stand.
If the general consensus is that it’s a great time to sell due to factors like a low supply of homes and robust interest in your community, tally it as another reason to go ahead and strike while the iron’s hot.
The thought of an invasive remodel fills you with dread.
In theory, a home renovation sounds easier than packing up all of your belongings for a move. However, keep in mind that the average renovation spans three to 9 months, variant based on the home’s size, as well as the scope and complexity of the project. Whatever timeline you’re quoted at — add a few weeks, at least. Delays are common. And during that time, you should be prepared to deal with a chaotic living space, unforeseen problems and expenses, and strangers in the house at inconvenient hours.
Even the heftiest renovation won’t fix your living situation.
A study by the Society of Actuaries found that 64% of retirees wish to remain in their current home throughout retirement. However, waiting too long to downsize or find a more manageable living situation can lead to rushed or emergency moves down the road. It can also tie up funds that could be put toward traveling or fueling a longer retirement.
If you’re interested in downsizing because of aging, health, or financial reasons, very few remodeling projects will accommodate all those needs. You can add aging in place features for a stretch, but you can’t turn a two-story into a single story. In that event, you’re better off shopping for a ranch-style home, maintenance-free apartment, or retirement community.
You’re excited to try out a new location.
A better school district, closer proximity to parks and trails, or a quieter street can’t be achieved through a remodel. If moving would grant you the chance to launch a different career or be closer to loved ones, that’s another factor in your decision. Some of the top features that make a location more enjoyable include:
- Job opportunities
- Lower cost of living
- Manageable traffic levels
- Low crime rate
- Proximity to family and friends
You’ve checked out the available housing inventory, and like what you see.
Pretend that you already sold your home. Now, go out to some real estate listing websites or sign up for new listing alerts. Do a few property searches for your desired number of beds, baths, and price range. Go on an evening drive on the hunt for for-sale signs in the area. Go to an open house or two or attend some virtual open houses online. Call up a local real estate agent and tell them what you’re looking for. All of these steps can help you get a sense for what’s available and whether you’d have any luck finding a different house worth moving to.
Start planning renovations: You’re better off staying
If you want a house that’s customized to your needs and tastes, renovations are the route to take. Hussey says he’s helped clients arrive at this decision after they look at homes that they can afford but wind up liking more about the home they already have.
“In some cases, I’ll sit down with them and say, this house fits you all very well,” he says. “If you’re going to stay in the house for ‘X’ number of years, remodel the house and make it your own again.”
What are some of those signs that you should remodel vs. move?
You’re in love with your location and your house.
People have to work through their emotional attachment if their current house no longer suits them, Hussey says. However, some homeowners simply prefer to live where they are. In the 2019 study from the Federal Reserve Bank of New York, 47% of respondents identified as “rooted,” or attached to their towns. Their reasons for not moving were psychological, such as proximity to family and friends and their involvement in their church or community.
You don’t have the resources to move, or you’re concerned about qualifying for a new mortgage.
When you sell a home, you usually want to buy a new one. In the same study as cited above, about 15% of the respondents identified as “stuck,” or lacking the resources or ability to move. While these individuals are more likely to live in cities and close to family members, their reasons for not moving are largely economic, such as worrying about moving costs and the affordability of housing elsewhere.
In Sept. 2020, housing affordability declined for the second month in a row due to the fast pace of house price appreciation, which outweighed savings offered by low mortgage rates, according to the First American Real House Price Index. In total, 41 of the 50 markets covered by the index saw affordability decline. The five markets with the biggest declines were Kansas City, Mo.; Las Vegas; Philadelphia; Pittsburgh; and Portland.
If your job situation has changed, you’re bringing in less income than when you obtained your existing mortgage, or you’ve taken on additional debt, it could shrink the size of the loan you qualify for, making a remodel a more feasible option.
You’re working with ample cash reserves that can cover hidden costs and delays.
While you can always finance your remodel, having any kind of cash available makes this more financially viable. You’ll pay more out of pocket upfront, but you won’t have a home equity loan or home equity line of credit to figure into your calculations. Here are a few of the most common home renovations and what you can expect to spend on them:
- Kitchen remodel: $13,000-$37,000
- Bathroom remodel: $32,000
- Patio renovation: $4,000
- New flooring: $3,000 per 500 square feet
- 12×12 room addition: $12,000-$29,000
Your roomy lot offers plenty of space for additions.
The cost of building an addition varies depending on the size of your total project, as well as where you build your room. But let’s say that you have a spacious lot that can accommodate an addition to the first floor without looking or feeling cramped. The average cost for this build is $80 to $200 per square foot, but you’ll save about $920 to $3,000 because you won’t have to install a full staircase. Plus, the addition will be more attractive to potential buyers, who like a primary bedroom on the main floor.
You’re prepared to deal with the short-term inconvenience compared to long-term distress over moving.
There’s more to moving costs than hiring movers or enlisting friends and a rental truck to help. In one study, respondents found that the psychological cost of leaving their friends and family equated to losing 30% of their income. Respondents also equated staying put with a worth of 137% of their current income — a value that shot up to 270% for people age 50 and older.
If you’re someone who already values what your current location has to offer, the upheaval of remodeling may be worth it considering the chaos lasts a relatively short term in the life of your home.
The costs of moving would be a wash with renovations.
Psychological costs of moving aside, let’s consider some additional financial figures. Selling a house involves a lot of line items and fees, including transfer taxes and agent commissions. You also have to account for the cost of hiring movers. While this can vary based on the size of your home and the distance, the average cost of moving a two- to three-bedroom home with roughly 7,500 pounds of goods is $1,250 locally. Move long-distance, or about 1,000, and that cost rises to about $5,000.
Tips for those going the remodeling route:
- Ask an agent for contractor referrals. If you’ve consulted with a real estate agent about possibly selling your home, ask if they have any contractors who can offer specific estimates on the renovations you have in mind. “We absolutely have people who can come in and say, ‘This is what it would be to remodel the bathroom, kitchen, or flooring,’” Hussey says, providing people with solid figures so they can make an educated decision.
- No savings? Figure out how you’ll finance the remodel. If you’re concerned about financing your remodel and don’t have cash available through liquid assets, talk with your accountant or other financial professional about financing options such as a cash-out refinance, where you refinance about 80% to 90% of your home’s value. There’s also the home equity line of credit, or HELOC, where you can borrow using the equity in your house as collateral. You’ll need at least 10% equity in your primary home (or 20% in a second home or investment property) to qualify.
Since we can’t snap our fingers Mary Poppins’ style and expect a new house to appear, the next best option is to make a measured and informed decision on whether to improve your existing home or relocate. While both routes can be viable, you don’t want to hold onto an impractical residence for memory’s sake alone or — on the other hand — regret leaving a hot location that will be hard to replicate with a move.
We hope this litmus test will help you tilt the scales one way or another to make a confident decision. When in doubt, sync up with a local real estate agent about your confusion. You owe it to yourself to collect as much valid information as possible to weigh what’s right for you.
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