urbazon / iStock.com
Your current home no longer works for you – at least in its current state. However you are not sure whether to sell or stay and renovate it to perfection.
In May 2022, the average national home price for active listings rose to an all-time high of $447,000 — a compound annual growth rate of 17.6% — according to Realtor.com. However, data from HomeAdvisor showed that renovations and remodels cost an average of $47,825, which is also a hefty investment.
Stay tuned: Stimulus updates you should know for Summer 2022
Rising Gas Prices: The True Cost of Switching to Electric
“Prices are skyrocketing right now and it’s going to affect both streets — renovating and buying a new home,” said Amy Kite, a real estate agent and owner of The Kite Real Estate Team based in the Chicago area. “You have to do some numbers and decide what makes sense for you.”
If you’re serious about the remodel, she said, you also need to consider the availability of the materials you’ll need.
“Building materials are limited and you may not be able to purchase the items you need for your Reno even if you go down this route,” she said.
However, she said that buying a new home comes with its own unique set of challenges — including the possibility of being outbid in your area — making that decision harder than it used to be.
“You don’t have the luxury of going through a bunch of houses and picking what you like,” she said. “It’s a competitive market and you may have to pay more than you can imagine to get the house you want.”
Since the market is currently difficult in many areas, many people no longer find the process of buying a house pleasant. Therefore, she recommended seriously considering a renovation and approaching it with an open mind.
“You may not get exactly the items you were hoping for during your renovation, but with the right patience and determination, you should be able to properly complete a renovation over time,” she said.
On the other hand, Bill Gassett, a real estate agent at Maximum Exposure Real Estate based in Hopkinton, Massachusetts, said he often sees homeowners in this situation looking to add a significant extension that doesn’t make financial sense.
“For example, someone who owns a 3 bedroom, 1.5 bath home who wants 4 bedrooms with a master suite and a generous bath will price the project and realize that the current value of their home at the price of its addition, what he wants to do is place them well above the same home they could get with these things already in place,” he said.
POLL: Do you have a side gig or other hustle?
This situation calls out to shop elsewhere, especially when they can move to a better neighborhood, he said.
“Often the current area in which they live would not support such a significant transformation,” he said. “Essentially, they would price themselves out of the neighborhood.”
While the nicest house on the block comes with bragging rights, he said it’s not necessarily the smartest financial move.
“Going from a house that’s on par with other houses to a house that’s head and shoulders better isn’t the best move in real estate,” he said. “You always want more expensive properties in your area that increase in value – not the other way around.”
Of course, the decision to convert or sell is rarely a dry one.
Baron Christopher Hanson, a real estate agent at Coldwell Banker Realty in Stuart, Fla., said you also need to consider the time and surprising costs that could come with either option.
For example, if you’re remodeling, he said, you should ask yourself, “Will you be able to live comfortably and affordably while your home is being remodeled?” Or will you be forced to stay in a hotel or Airbnb for several weeks or months, especially if the kitchen and bathroom and their plumbing are 100% renovated?”
He said you should also consider whether your architect, contractors, remodeling materials and equipment will be available exactly as planned to quickly complete each phase and job on time and on budget, or will the remodeling take double the time and time will triple the projected money?
Conversely, when you decide to find a new home, you need to consider the price of finding a better home – along with the stress of time constraints of completing a contingency contract – versus the associated costs and timelines with remodeling .
Hanson suggested doing a side-by-side analysis of the short-term costs, time, and personal stress required for each person in your household before you move — or not.
In addition, he said you need to project the longer-term financial impact of each route five or 10 years down the road.
For example, he said you should ask yourself, “Will your newly renovated home appreciate even more?” Or will the new home you want to buy and move into instead provide a greater return on your time and investment and personal stress?”
Taking the time to carefully compare both the short-term and long-term tax scenarios of remodeling and moving isn’t easy, but he said it’s a must.
The decision may be difficult, but as long as you consider all aspects carefully, you should be able to decide with confidence which choice is ultimately best for your finances.
More from GOBankingRates