The wealth effect from home-price appreciation has been a clear driver of remodeling activity in recent years. Awash in home equity, homeowners have cashed out a portion of their gains to build additions and to redo bathrooms and kitchens. But now, as home prices moderate and it becomes a buyer’s market, some homeowners are taking their gains and moving after initially thinking about remodeling.
Let’s take the example of a couple who bought a home for $300,000 15 years ago and it is now conservatively worth $900,000. Their kitchen appliances need updating, and the space needs to be better configured for their family. They call a remodeler. He gives them a price of $100,000 to do the job. It’s a scary number for the homeowners.
Then a real estate agent sends a flier about a nearby home that has been on the market for over 100 days. The price is being lowered from $1.2 million to $1 million. The house is bigger. The taxes are the same. And more importantly the kitchen is new. They buy it and sell their current house “as is” for $900,000. They pay off their $150,000 mortgage and apply $750,000 to the new house. Their mortgage on their new house is $250,000, same as if they had remodeled the kitchen and rolled it into their old note. The only additional cost is $6,000 for moving expenses. But now they don’t have to cope with construction. They are into a better home for essentially the same dollars.
This scenario plays out everyday. And although it is still just a small portion of the remodeling market, I think smart remodelers should be cognizant that the move-or-remodel scenario is more fluid than before.
Some homeowners are more footloose and ready to move. For those remodelers who keep to a very tight geographic service area, a deep understanding of local home values will come as a big benefit these days. The ability to assess a homeowner’s overall real estate options before coming back with a price is more important than ever. Maybe a smaller scope and a $75,000 price instead of a full scope for $100,000 would have kept that homeowners in place and converted them into a client.
Editor’s Note: We are pleased to highlight two new departments in the magazine. You will find a new monthly feature highlighting the achievements of the national Remodelor of the Month from the Remodelors Council of the NAHB. And on page 22 we debut the renewal of our continuing education program with the National Association of the Remodeling Industry. To earn CEUs, simply register at NARI.org or QualifiedRemodeler.com. Then take the quiz about the first guest column written by Darius Baker, CR, CKBR.