Remodel or Relocate?

Smart Solutions • March 2014

Upon the realization that their house no longer fits their needs, homeowners are faced with two choices: remodel or relocate. Until recently, both options might have been considered a financial risk for many homeowners. But 2013 saw the strongest gain in home prices in eight years,5 giving owners the confidence — and the equity — they need to make their next move. If your current property falls short of your dream home, answer the following questions to help determine if it’s time to break out the toolbox or the moving boxes.

Would selling be profitable?
While home sales are up nationwide, the strength of the rebound varies by location. Comparing three key metrics — price increases, time on market and inventory — in your neighborhood can help you decide if selling makes financial sense. You can ask a local real estate agent for a comparative market analysis, or you can do the research yourself using data available on websites such as Trulia.

Once you have a realistic idea of what your house is worth, consider how much you still owe on your mortgage and how much you would need to spend to find a suitable replacement. If you have less than 20 percent equity in your home, it might make more sense to stay put.6

Would your remodeling projects boost property value?
Outfitting your home with all the latest trends may transform it into your dream home, but it won’t necessarily boost your property value. The value of your home is partially determined by the value of those that surround it. Lots of expensive upgrades could potentially price your home out of the local market if and when the time comes to sell.

To ensure your renovation is a smart investment, consider these tips:
  • Appeal to the masses. You probably won’t recoup your cost on projects that will only appeal to a small percentage of buyers, like safe rooms and wine cellars. However, high-end kitchens, spa-style bathrooms and walk-in closets are features for which most people will pay a premium.
  • Think long-term. Trends change, but extra space is almost always in high demand. Structural modifications that increase livable square footage tend to hold their value longer than style-based updates.
  • Don’t cut corners. Buyers expect to get their money’s worth. Low quality materials and craftsmanship can drag down the value of your project.
Can you find a better alternative?
Low inventory and pent-up buyer demand could mean stiff competition for your new dream home. Be sure what you’re looking for is out there before placing a “For Sale” sign in your yard.
If you do find a potential contender home, a simple cost-and-value comparison can help you decide if the move is worth it. Examine:
  • Cost of renovations (materials, labor, refinancing/loan fees) versus cost of moving (agent fees, closing costs, movers)
  • Cost per square footage of each home
  • Market value of each home
Home is where the heart is.
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Disclosures:

  1. "Credit Limit Tricks: Keep a High Score While Still Using Your Card," Dana Dratch, CreditCards.com, accessed April 18, 2014
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