What is the real estate market like where you live? If you live on the peninsula where there is very limited inventory and homes are selling at or above the asking price, remodeling may be something to consider.
If you don’t have a family room or second bath and you desire one, in some areas it is easier and more cost effective to sell your current home and purchase another as opposed to paying for the high cost of remodeling. This approach is more common in towns up and down the central valley and other areas around the country.
Analyzing your particular housing market is a critical first step in deciding whether you should remodel or move. In more balanced housing markets it is easy to sell your current home and then purchase a home that has the amenities you desire. On the peninsula it can be much more difficult to locate your replacement home at a price you can afford.
Homeowners need to recognize their needs and goals. Do you love the neighborhood, the easy commute, the schools, etc. but need more living space? Often the decision can extend beyond just finances. Homeowners need to take into account the location, neighborhood, and any personal or emotional connections they may have with their home.
Making a list of the features you feel are missing and would like in your current home might be a good idea. What bothers you most about your home? Some things have solutions and can be easily changed. Other things, such as a declining neighborhood, cannot be changed.
Factor in your time frame and family needs. How long do you feel you will want to continue to live in your present home? What would be the most prudent financial decision with your current income and needs? If you are leaning toward remodeling, you have to be sure you are not over improving for your neighborhood. Does your current home lend itself to remodeling? Can you turn the unfinished basement into a family room? Do you have a large enough lot to add ground level square footage, or would you be going up on the remodel?
Construction is a real hassle. The dirt, mess and disruption of remodeling can drive you crazy. Trying to remodel while living in the house is even more difficult. Moving out during the remodel is another added expense. Are you going to be happy with the remodel, or are you ‘dressing up a pig’? Purchasing a new home may be a better choice. You may end up with better value, better financing, a better neighborhood, and the amenities that are important to you.
You should also remember to factor property taxes into the equation. Property taxes will be adjusted if you remodel, but normally will not increase as much as a new home purchase.
Collect as much information as possible in advance and then do the math before making your final decision.