MICHAEL EDLEN
REAL ESTATE CONSULTANT
As a family begins to outgrow their home, the question often arises: “Should we add-on to this house or should we sell it and buy a larger one?”
If a remodel can be done that ties in well with the existing house, and if the family is willing to live elsewhere during construction, it is often economically better to do an addition rather than buy another home. Although either alternative is disruptive, and both involve costs of moving, it may be even more costly to sell one home and buy another.
Two significant factors are the scale and floor plan of the current home. Houses are designed to be the size that they were originally built, with spaces that usually are in proper proportion to each other. If an owner adds new rooms, it may make the floor plan less desirable to future prospective buyers. For example, having to walk through a bedroom to get to another bedroom or family room would not work well for most people, and may result in less value than the cost incurred in remodeling.
Another consideration is whether the size of addition results in a house too large for its lot or immediate neighborhood. By overbuilding, the value of that home is actually diminished by nearby much lower average values. Of course, there are always exceptions to any general rule, such as if the value of the lot is exceptional due to its location, or if it has outstanding views.
Try to interview at least two architects and/or contractors early in the exploration phase. Although their expertise may not focus on resale value, they can provide some ideas about approximate costs and general design concepts. Good ideas for remodeling are available at home shows, home improvement centers or open houses for newer homes. Interior designers are a good resource for ideas, too.
Owners do not always get back all of the investment cost when selling recently improved homes. From a real estate investment value perspective, some remodeling ideas are better than others. Examples of improvements that usually do result in a profit when selling soon after remodeling include new landscaping, painting inside and out, new carpeting or refinishing hardwood floors. The kitchen is typically the most important area to add investment value, and bathroom remodeling can also be cost-effective.
In many cases it may be better to sell a home and re-invest in one that already suits the family needs. This also minimizes the stress that usually accompanies major remodeling and enables a much quicker enjoyment of the new environment. It also eliminates any questions about how a remodel would look and feel when done.
Another factor to be mindful of when considering a sale and purchase of another home is that capital gains taxes may be due. Tax consequences might lead towards remodeling rather than selling, and owners are advised to check with their accountant or tax advisor before making a decision. Of course the income tax impact could be lessened substantially to the extent that the $250,000 or $500,000 exemptions apply.
Michael Edlen, an agent with Coldwell Banker in Pacific Palisades, can be reached at 310.230.7373 or Michael@MichaelEdlen.com.
