Should You Move Out Or Add On To Your House?

The answer depends upon a variety of factors, including where your job is located, the schools your children attend and how a remodel will position your house against others in your neighborhood.
By: Lew Sichelman: The Wall Street Journal Online
Issues on people's minds: If you need a bigger house should you move out and move up or stay put and add on in a neighborhood you know has greater potential for home-price appreciation?

Question: My family lives in a very small, older home in a neighborhood that is rapidly increasing in value in Charlotte, N.C. Our two-bedroom home is about to become too small as we consider having a third child, and we are struggling with determining whether to move or renovate. If we renovate, we'll have to take on additional home equity debt, but we'll be able to remain in a hot neighborhood. If we move, we can get a larger house and keep the same mortgage amount, but we will be further from downtown and have less property appreciation. What would you do? What factors come into play that we might be missing?

- Jenny Bonk

Answer: Whether to move or remodel is the age old "chicken or egg" question of real estate. But it isn't only a monetary one.

For starters, consider the disruption that a major renovation can cause. Depending on the extent of what you do to make your small two-bedroom bungalow more livable, you and your family could be in for an extended unsettled period.

Of course, moving can be traumatic, too. But at least you can plan for what lies ahead, and the actual move - save for the unpacking - is over fairly quickly.

Another thing to consider when remodeling is that you want to be certain you don't overimprove for the neighborhood. If you make yours the largest, best-equipped house on the block, you're not likely to get as large a bang for your renovation buck at resale time because the other houses will tend to hold values down.

At the same time, if you are in this for the long haul, I believe you need to do whatever you want to your house to make it livable and enjoyable. Paybacks should only be important if you are planning to move within a relatively short time, say two or three years.

As far as moving farther out is concerned, I'd take a hard look at any possible extra commuting time you and/or your husband may incur. That not only puts more wear and tear on the old jalopy, it puts more mileage on the both of you at a time when you are raising two and soon to be three young kids. Do you want to take more time away from them?

And speaking on the children, are the best schools available to you where you live now? Or are they better where you are thinking about moving.

Monetarily, your big concern seems to be making sure you continue to ride the housing gravy train to wealth and riches. But I wouldn't worry about appreciation. I'd just let that take care of itself. Your primary goal should be to live in a comfortable house you and your family can enjoy.

First and foremost, a house is a roof over your heads. The investment aspect, while certainly important, should be secondary. Besides, neighborhoods, like bars and restaurants, run cold as well as hot. And who knows, the new neighborhood - if that ends up being your choice - could see even greater appreciation that the one you're in now.

Feedback

Lots of readers weighed in on my response to Holly, who thought she had been ripped off by an attorney who wanted to sell a six-unit apartment at an inflated price.

Scott Nolan, an attorney in Illinois, suggested that my ploy to tie up the property in a lawsuit so it couldn't be sold to someone else could be dangerous.

"You can sue and file a lis pendens, which is notice of litigation affecting the property, and this would tie up the property," Nolan pointed out. "But in order for Holly to file the lis pendens, she would have to have an interest in the property; i.e., she would want to carry through with the purchase."

The attorney warned that "to file a lis pendens when you're wanting only a money judgment and not the property itself, is a slander on title, for which she could be liable. So, beware the lis pendens remedy, if used inappropriately."

I don't know if we're on the same page on this or not. I wasn't suggesting to sue to gain title or to win a monetary award. I suggested to sue in order to get out of the deal by tying up the property so it couldn't be sold to anyone at any price until the suit is settled, which could be years.

If the seller has to hold the property all that time and continue to pay taxes and presumably a mortgage, he might think twice about holding Holly's feet to the fire. He may just allow her to vacate the contract and try to sell to someone else. But I'm not an attorney. So, with Nolan's admonition in mind, anyone considering this avenue should seek the advice of legal counsel before proceeding.

Meanwhile, Virginia resident Kevin Stupay said he has a better idea: Simply find it impossible to secure financing and the deal will dissolve under its own weight.

"Is it not correct that any contract is contingent on financing, whether or not it is specifically stated in the contract, unless there is a specific waiver where the buyer agrees to make up any financing gap due to a low appraisal?," he wrote.

Stupay said he personally has used the inability to obtain financing to escape contracts on several occasions. On the flip side, during the recent sellers market, he also waived sufficient appraisal to obtain an edge over competing buyers.

"It seems that since the appraisal came in at $40,000 less per unit, the appraisal won't support the financing and Holly will not be able to get suitable financing. End of story," he said.

"Unless the selling attorney is willing to renegotiate, the buyer should be able to terminate without forfeiting her deposit. Although in this case I wouldn't doubt that the selling attorney wrote the contract whereby the buyer waived any financing or appraisal contingencies."

Taking another tack, K.C. Bran said that instead of a lawsuit, Holly should file a grievance against the attorney for misrepresentation. "At least the purchaser could get some satisfaction by making the attorney account for his or her behavior and lack of integrity," Bran wrote.

And finally, Michael Parlato said he would go after the real estate agent. "I am sure that if the real estate agent got the square footage incorrectly, then the agent is liable. So Holly she can sue the agent!" he wrote.