New Year's resolutions abound with the best intentions. However, sometimes you don't know where to start. If one of your 2017 goals is to buy either a new-construction or a pre-owned house, or to remodel or update your current home, we suggest getting a good handle on the cost of each option before moving forward.
First, to sell your current home, budget for the following three variables: 1) Some 7 percent of the selling price will go to cover the brokerage fee and closing costs. 2) Add the cost of any updating needed — frequently carpet and paint — to increase the value and decrease holding time. 3) Add the cost of any repairs negotiated after the home inspection.
Next, consider four variables in financing the new construction home: 1) About 3 percent of the loan amount for the closing costs, which doesn't include the down payment coming from the equity of sale of your current home. 2) A builder is unlikely to include all appliances in the purchase price, so you need to buy a washer, dryer and refrigerator. 3) If the yard is completed only to minimum standards of final grade, budget 3 percent for professional landscaping. 4) For window coverings, budget 1 percent.
As an example, if your home sells for $300,000, the closing costs are approximately $21,000. If you then purchase a $400,000 new-construction home, estimate another $12,000 in closing costs, $12,000 in landscaping and $4,000 in window coverings. So, theoretically, you need about $49,000 to move to a new-construction home. If location is not a concern, the new-construction home will have other benefits: the latest in updates and fewer large maintenance issues in the near future. For a pre-owned home, you typically don't incur as much in appliances, landscaping and window treatments.
If you decide to remodel or update your home, here are a couple of tips.
First, create a game plan. This will help you understand your motivation, prioritize projects and keep you focused — all of which will hopefully control expenses.
Motivation to purchase or sell a home can take many forms: a new baby on the way, children off to college — or maybe you've been watching too many HDTV episodes. Understanding why you want to buy or sell can help you see how your family may enjoy the results (always a good thing), as well as the negative or positive values to the property. Think of your home as a hybrid investment with the value of any project divided between 1) personal and family enjoyment, and 2) the potential return on investment, depending on how soon you sell.
According to the National Association of Home Builders, about 60 percent of new homeowners start updating their home within six months of moving in. Often, the longer you live in a home, the less important those initially bothersome things seem. Early property updating allows the current owner to enjoy the fruits of their labor.
When it comes time to sell, the work can also make a difference to prospective buyers. In older homes, first impressions matter; prospective buyers look past statistics (bedrooms, baths, square footage, garages, etc) to also see what remodeling has been done.
Organizing your wish list allows you to prioritize. You may notice a number of small maintenance tasks that can be easily tackled. Doing these now prevents an easy repair from later becoming costly.
Prioritizing projects can help you coordinate updating. If each project is spaced out over time, make a conscious effort in planning so the entire home has continuity and doesn't feel as though each phase was done in a different era.
Having a list also allows you to feel like you are accomplishing a part of the bigger goal as you slowly mark items off.
Next, what you do (or don't do) during your ownership can have a negative effect on value. Doing nothing gives you little enjoyment and minimal return on investment, because the next buyer will take the cost of the project and the hassle to do the work off the price of the property.
Here are a couple of other thoughts to consider that could affect value in either direction:
1. With a major remodel, such as an addition, the enjoyment factor is high and the return on investment increases the longer you own the property. However, be careful you don't overbuild or put in such expensive finishes that yours becomes the most expensive property in the area.
2. A kitchen remodel is the most expensive interior project; however, it also gives the best return on investment. According to 2016 cost-versus-value calculations from the National Association of Realtors, a minor kitchen remodel (national average cost of $19,226) has a national payback of 83.1 percent. Again, don't overdo the finishes relative to the house and neighborhood, unless it's for your enjoyment and you plan to stay for a while.
Finally, with Anchorage's aging housing inventory, if a specific location is important to your family, don't discount an older home in need of remodeling or updating. Whether you decide to move, or stay and remodel, create your plan, keep the property maintained and give yourself time to enjoy the results.