Remodel or buy bigger?
Roger Diez | Improvement Center Columnist | September 6, 2013
After five years in the doldrums, the housing market appears to be gaining strength. If you are in a position where you need more room, you have two choices: buy a bigger house or add on to your existing home. With mortgage rates still low and housing prices rising, you might be tempted to move, but before you rush to put your house on the market, there are a few things to consider.
Buying: housing market pros and cons
With the upswing in home sales, you might think it is a good time to sell your current home and move into more spacious living quarters. If your home has appreciated in value, you may be able to use the equity to upgrade to a bigger house, provided you can find the right deal. Unfortunately, there are some pitfalls:
- Reduced inventory: Most of the good deals (foreclosures, short sales) have already been snapped up by investors, and shrinking inventory means rising prices.
- Underwater mortgages: A significant percentage of homes are worth less than the value of their mortgage. It is difficult to move if you are going to take a loss on the sale of your current home.
- Credit issues: If you are one of the newly self-employed, or if you were unemployed until recently, your credit rating might have taken a hit, making qualifying for a home loan difficult.
- Fast-moving market: If you list your home, you may find a buyer before you find a replacement property. This could leave you trying to find a rental to live in while you search for a new place.
However, there are just as many reasons why you might need a larger home:
- Family additions: Kids are straining your available living space, especially if they are reaching their teens.
- Bounce-back children: Your young adult children might be moving home if they are having trouble finding employment after college or are recently divorced.
- Self-employment: Due to the tough labor market, you might be working from home and need an office or workshop.
- Aging parents: Your elderly parents may be unable to afford assisted living and are dependent on you for care.
After decades of adult children and parents making a point of living independently of one another, multi-generational households have become practical again.
Stay and remodel
If you need an extra bedroom, a second or third bath, a second story, an office or workshop, and have the means, consider adding to your present home rather than moving. Depending on your situation, you might even be able to finance the project with a home improvement loan or a second mortgage.
Now is an excellent time to remodel, according to a survey done by Remodeling Magazine, which finds that the cost-to-value ratio of remodeling for 2013 has improved over previous years. But the window on value could be closing; with the housing market picking up, you are likely to see construction material costs rise in the not-too-distant future.
Whatever kind of home addition you need, remember that planning is the most important part. Consider your space requirements and know how you are going to finance the project. Be aware not only of your immediate needs, but also of how remodeling could affect your home's resale value.
Research contractors, and pick one with experience in your particular type of construction -- adding a bathroom, for example, is less complicated than building on an entire second story.
Keep these factors in mind when reviewing the remodeling contract:
- Cost: Make sure that labor and material costs are spelled out with payment terms included. Change order costs should be addressed as well.
- Time: The contract should have firm start and end dates for the project.
- Guarantees: Make sure that the contract is explicit about any guarantees or warranties on the materials and the quality of work.
- Permits: Ensure that the contract specifies who is responsible for obtaining building permits and scheduling inspections.
Moving or remodeling is a big decision, but you might not have to choose between the two. In some cases a home addition is not even possible due to structural limitations or local building codes. On the other hand, buying another home might be out of the question given the scarce inventory of homes in some markets. Your options might be restricted in these situations, but either way you go, 2013 appears to be a good time to find more living space.