Ask Money

Remodel before selling

Chris Farrell Jan 6, 2010

Question: My wife and I would like to move to a larger house in a more kid-friendly neighborhood. Also, we just inherited some money after my mother’s recent death. We like the idea of trading up in a down market, but we aren’t sure what the best thing would be to do with the money: make improvements to our current house or use it to cover the costs of trading up? We have only lived in our current house for a few years and are almost certainly under water, so if we sold and bought we’d have to pay on both ends. Also, our current house could really use a new kitchen, and we had plans to put in a new bathroom. So, the question is: given the current market, and given that you almost never get back what you put in on remodeling jobs, should we forgo any further work on the house and try to make our move as soon as possible, or should we try to make the house more salable first? Thane, Frederick, MD

Answer: You face a number of difficult trade-offs. What I am going to try to do is hopefully help you think them through. My bottom line is I don’t want you to end up financially stressed.

I’m skeptical that it makes sense for you to pour money into a major remodeling project. As you say, you won’t make the outlay back. Worse, you could end up widening your loss at sale. After all, I have yet to meet anyone who hasn’t suffered through cost overruns redoing their bathroom and kitchen. It’s in the nature of the project. You should also get the perspective of an experienced real estate agent.

It makes more financial sense to me for you to remodel your current home so you don’t have to move. Small is sometimes beautiful, at least financially. What you give up with this strategy is living in a more kid friendly neighborhood.

Now, if you do end up deciding to sell, you’ll want to do some savvy staging and invest a bit in important cosmetic work. But I’d keep the overall money outlay down. Again, a pro can give you more detailed advice on how to get your home ready for sale.

Another financial question to really research is how much will it cost you to buy a better home in a more kid-friendly neighborhood? What’s the real cost of ownership in the new place, from property taxes to utility bills to mortgage payments? I know you’re aware of it, but part of my job is to remind people that a major lesson of the past few years is don’t stretch your finances to own. It’s a recipe for financial stress and maybe money trouble. And how will trading up in a down market affect your other savings goals, such as saving for college, retirement, and emergencies. Can you fund these smart financial goals and own the bigger house?

My last point is where finances meet the intangibles. Will you be able to live in the new place for a long-time? You probably will never make back what you lost financially if you make this move, but time will ease the financial pain and you’ll enjoy many years of the kind of lifestyle you want.

Good luck.

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