A very popular question to many homeowners. Does the existing location and basic layout of the structure allow renovation to accommodate goals and future plans, or does it make more sense to simply move?
As with so many questions within this website, there are so many local and specific personal parameters surrounding this question, that a general and overall answer is impossible. However, can we establish a means of evaluating the issue, and generalizing a procedure to lead the individual to a more accurate answer, accomplished by study and introspective?
Basic Principles that should be considered in an attempt to evaluate the question of renovation or purchase?
- Location / is the existing location convenient and logical for future growth or downsizing?
- Lot size and maintenance issues / is the existing property large enough, too large, etc
- Lot topography / does the topography ( hills and valleys ) of the property allow adequate movement?
- Handicap issues / does the property fit any “ special needs “ accommodations that are present or foreseen?
- Property frontage / is there any frontage issues that cannot be accommodated, too much traffic, difficult in the winter, located adjacent to a major highway, etc.
- Are there utility issues / is there current sanitary issues ( septic tank inadequacies ) sewer assessments, water issues with onsite well, electrical transmission lines, primary gas lines, etc.
- Outgrowing the property / is the family growing or getting smaller and the property is not adequately accommodating the family?
- Neighbor issues / are there neighbors that are difficult to live next too, loud parties, constant car repairs in driveway, etc.
- Renovation and addition accommodations / is the property large enough and have the zoning allowances for additions and renovations
- Resale / is the property conducive to resale , or does it present difficulties for future purchasers?
- Family proximity / are there family proximity issues such as the need to care for a family member that mandates the present location?
- Structural issues / does the structure have foundation or structural issues that cannot be resolved?
- Water issues / does the structure have water issues, basement, exterior drainage, that cannot be resolved?
- Outdated / is the structure so outdated that the cost of any renovation does not make financial sense, based upon the structures location and real estate appeal?
- Basic Layout / does the structure present a basic “ poor “ layout for your future expectations?
- Deterioration / is the present deterioration of the structure so far advanced that correction and repair is not a practical consideration
- Value / does the structure present an impossible financial balance, meaning if renovations are performed, the cost of these renovations would increase the money expended into the real estate and exceed any expectations of value?
Again, I stress that this question is a difficult one to analytically and objectively answer, due to all the individual and personal implications of the decision.
As with the discussion regarding the cost of a constructing a new home, the location of the project, the current real estate values, as well as the location of the present home, in terms of public appeal, are all values that must be considered and analyzed. However, as with the case of attempting to value the cost of your new home, the local real estate magazines and advertisements are excellent windows into the marketplace. These publications which can be found at all local convenience stores are excellent summaries of the real estate’s current market rate.
Accumulate a few months of local real estate publications, and start to develop a spreadsheet to analytically identify the average sale values of homes in your neighborhood. As noted in previous discussions, the use of a square foot ( SF ) value for comparison, is an excellent initial method for an analytical evaluation. Of course, the cost of the renovation or addition is an entirely different calculation which I describe in other discussions on this website. However, an example of how I would analytically evaluate this decision would as follows.
Once considerations regarding property and the structure are discussed and analyzed, the final evaluation should be a price study, of whether it makes economic sense to renovate, or simply sell and purchase new. How to go about this, in a manner that is not emotional or bias becomes a basic accounting study.
If you have not determined the answer to the question of renovation or new purchase based upon an analysis of the already noted considerations it is time to perform this simple cost study.
- As with my discussion regarding the cost of a newly constructed home, verses the purchase of an existing structure, look at the real estate publications. Develop your SF value for a home in your neighborhood. For discussion, let’s use a value of $250.00 / SF for the average real estate that is available within your area.
- Identify the “ sale “ value of your present home with no renovations or improvements. This can be accomplished by interaction with a real estate broker, or by your own investigation into similar homes, and the sale value in your neighborhood.
- Identify the scope of the renovations, additions, or other improvements that you are considering for your current home. Once the scope of the work is identified, the costs can be roughly ascertained by inviting some local home improvement contractors to present their approximations for the scope of work. There are local websites that can be utilized to locate home improvement contractors that would be capable of performing this cost analysis.
- Add the “ sale “ value of your present home with the average of the budget projections indicated by the home improvement contractors. This total value will be the economic value of your home after the improvements.
- Compare this value, with the values of homes in your neighborhood that are on the real estate market. Again the SF value is the best determination of home value. Granted there are several other parameters that need to be considered, condition of the existing home, location, etc., however as every homeowner quickly understands, these parameters are minimally important to the general overall SF value of the real estate.
As an aside, it is always difficult for the homeowner to realize that the custom wood paneling that they installed themselves in the family room does not enhance the value of the real estate. It does not, and the sooner this realization is absorbed and accepted, the more genuine will be your evaluation of the actual real estate market!
Once this analytical analysis is performed, without bias towards your favorite wallpaper, I suggest an excel spreadsheet be set up, it will become quite obvious which alternative should be entertained.
If the total value of the existing home together with the renovations, produces a SF value for the entire project, over 25% of the average real estate values currently being offered, I would seriously reconsider the decision. The scope of the intended alterations can be reduced to accommodate the cost comparison, however, the compromises must be seriously considered. Do not force a round peg into a square hole because this decision will cause hardship in the future and in the resale of the home.
In general there are a few immediate qualifications that would make a large renovation sensible to perform, and would cause the previously analytical analysis, to support a large and expensive renovation.
- The initial expenditure for the home was below market rate.
- The initial home was seriously damaged or had not been maintained and is “ primed “ for easy and economically, inexpensive renovations, such as painting, new roof, new siding, etc.
- The neighborhood has so radically changed for the better, since the initial purchase of the residence, that any improvements will be absorbed by the improvement of real estate values.
- There is no more locations, such as the current location ( waterfront for example ), that would make any renovation cost sensible and an easy determination.
- There are location factors such as schools, family, etc. that almost mandate that the location remain the same.
In summary, the decision to renovate or purchase can easily be determined by an analytical evaluation. However, emotion as well as specific individual and personal parameters will always enter the decision making process. As I have indicated elsewhere within this website, the use of a professional construction consultant to assist in making this important decision would be the best and most practical method of enhancing the accuracy of your decision.
Good luck, and remember, numbers talk, and although emotionally you may not agree, the real estate market is easily evaluated by comparing the SF values of similar homes in your neighborhood.