Should You Move or Remodel?

By: Dona DeZube

Published 2010-08-24 15:17:58

When your house no longer suits you, you can move or remodel. Find out which big change is the right investment of your housing dollars.

Calculate how much your remodel will cost and add it to the value of your house. If the number is more than 10% above your neighbors' house values, you're over-improving. Image: Masterfile

Deciding whether you should move or remodel? The most important things you need to consider are the four things you can’t change: your home’s value compared to the rest of the neighborhood, how much you love your neighborhood, the size of your lot, and the cost to move your stuff to a new house.

Just about everything else—remodeling costs, the hassle of living in a construction zone, or the ability to live happily without one more bathroom—is a personal preference. After all, your home isn’t just your largest investment; it’s also the place where your family lives.

1. Will remodeling make your home better than everyone else’s?

To make the right move-or-remodel decision, you have to know:

• Your home’s value. Easy. Just ask a REALTOR® to estimate it and tell you how it compares with the value of the other homes in your immediate neighborhood. Ask her what she thinks your house will be worth after the improvements, too.

• Your neighbors’ home value. Hit some open houses. Seeing the inside of area homes will inspire you; help you make good choices about finishes, room sizes, and how much to spend; and, admit it, entertain you.

• Your remodeling costs. Once you’ve got your renovation vision, get a quote from a home improvement contractor or, if you’re remodeling it yourself, tally the costs of the items on your supplies shopping list.

Then add the remodeling costs to the value of your home. If the number you get is more than 10% above the average value of homes in your neighborhood, you’re over-improving and probably won’t be able to sell for what you put into the remodel.

Here’s why: No one wants to buy the most expensive home on the block (your home) if they can spend the same money to get a similar home on a block of higher-priced homes. Would you pay $200,000 to live on a block where all the other homes are valued at $100,000? We hope not.

Make home improvements that are typical for the neighborhood. Don’t put granite countertops in a trailer, and don’t put laminate countertops in a Trump Tower condo. Your tour of open houses gives you a chance to verify that your planned remodel isn’t an over- or under-improvement for the neighborhood.

2. Do you love where you live?

Want to keep your kids in the same school district, but can’t find or afford a bigger, better house? Love the neighbors? Have an easy commute to work? Stay put. If you’ve soured on the traffic, the neighborhood’s crime rate, or the nosy neighbors, move on.

3. Do you have room to expand?

If your remodeling plans include increasing the overall size of your home, the size of your lot may be the deciding factor in whether to move or remodel. If you live in a 1,500 sq. ft. ranch on a 3,000 sq. ft. lot, you might be able to add a second story to turn it into a 3,000 sq. ft. two-story, but you’re not likely to add 1,500 sq. ft. at ground level. And if you have a septic tank and well, the location of those will limit how and where you add onto your home (or cost you a bundle to move).

4. Can you afford to move?

Consider these moving costs: sale costs for your existing home, shipping your household goods, buying window treatments and possibly furniture for the new house, costs to fix up your existing home before sale, higher utility costs (if your next house is bigger), insurance cost differences, and property taxes.

First Time Homebuyers Tax Credit Extended Into 2010!!

First Time Homebuyer Tax Credit Extended Into 2010! Plus...A New Tax Credit for Certain Existing Home Owners!

It's official. President Obama has signed a bill that extends the tax credit for first-time homebuyers (FTHBs) into the first half of 2010. This program had been scheduled to expire on November 30, 2009.

In addition to extending the tax credit of up to $8,000 through June 30, 2010, the extension measure also opens up opportunities for others who are not buying a home for the first time.

So Who Gets What? The program that has existed for FTHBs remains intact with the one exception that more people are now eligible based on an increase in the amount of income someone may now earn.

Additionally, the program now gives those who already own a residence some additional reasons to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Deadlines In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.

Higher Income Caps in Effect The amount of income someone can earn and qualify for the full amount of the credit has been increased.

Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligible.

Joint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.

Maximum Purchase Price Qualifying buyers may purchase a property with a maximum sales price of $800,000. First-Time Homebuyer Tax Credit – Frequently Asked QuestionsHere are answers to some commonly asked questions about the tax credit.
What is a tax credit? A tax credit is a direct reduction in tax liability owed by an individual to the Internal Revenue Service (IRS). In the event no taxes are owed, the IRS will issue a check for the amount of the tax credit an individual is owed. Unlike the tax credit that existed in 2008, this credit does not require repayment unless the home, at any time in the first 36 months of ownership, is no longer an individual's primary residence.

What is the tax credit for first-time homebuyers (FTHBs)? An eligible homebuyer may request from the IRS a tax credit of up to $8,000 or 10% of the purchase price for a home. If the amount of the home purchased is $75,000, the maximum amount the credit can be is $7,500. If the amount of the home purchased is $100,000, the amount of the credit may not exceed $8,000.
Who is eligible for the FTHB tax credit? Anyone who has not owned a primary residence in the previous 36 months, prior to closing and the transfer of title, is eligible. This applies both to single taxpayers and married couples. In the case where there is a married couple, if either spouse has owned a primary residence in the last 36 months, neither would qualify. In the case where an individual has owned property that has not been a primary residence, such as a second home or investment property, that individual would be eligible.

As mentioned above, the tax credit has been expanded so that existing homeowners who have owned and occupied a primary residence for a period of five consecutive years during the last eight years are now eligible for a tax credit of up to $6,500.

How do I claim the credit? For those taking advantage of the tax credit in 2009, you may choose to either apply for the credit with your 2009 tax return or you may apply for the credit sooner by filing an amended 2008 tax return with Form 5405 (http://www.irs.gov/pub/irs-pdf/f5405.pdf).

Can you claim the tax credit in advance of purchasing a property? No. The IRS has recently begun prosecuting people who have claimed credits where a purchase had not taken place.

Can a taxpayer claim a credit if the property is purchased from a seller with seller financing and the seller retains title to the property? Yes. In situations where the buyer purchases the property, even though the seller retains legal title, the taxpayer may file for the credit. Examples of this would include a land contract, contract for deed, etc. According to the IRS, factors that would demonstrate the ownership of the property would include: 1. the right of possession, 2. the right to obtain legal title upon full payment of the purchase price, 3. the right to construct improvements, 4. the obligation to pay property taxes, 5. the risk of loss, 6. the responsibility to insure the property and 7. the duty to maintain the property.

Are there other restrictions to taking the credit? Yes. According to the IRS, if any of the following describe your situation, a credit would not be due.

You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.

You do not use the home as your principal residence.

You sell your home before the end of the year.

You are a nonresident alien.

You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)

Your home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)

You owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2009, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2006, through July 1, 2009.

Can you buy a home from a step-relative and be eligible for the credit? Yes. Provided the person you are buying a home from is not a direct blood relative, the purchase would be allowed.
Can parent(s) who will not live in the property cosign for a mortgage for their child and the child that is a qualifying FTHB still be eligible for the credit? Yes.

Can a separated spouse who has not owned a home for four years qualify for the FTHB tax credit if the spouse has owned a property anytime in the last three years? No. However, the spouse may be eligible for the repeat buyer credit. The best path to take in any situation regarding income taxes is to speak with a professional tax preparer or CPA.

If you have any questions that fall outside the situations here, give me a call and if you do not have an accountant to speak with, I can refer you to one.

Chandler Real Estate Update

Foreclosure activity counts

The Chandler Arizona Real Estate market has been improving since the beginning of 2009. In February, there were an average of 1,824 homes for sale in Chandler, AZ. As of this week in early September that inventory has dropped to 1,136 residential homes, condos and townhomes. Chandler Arizona Real Estate in January had 148 homes sold, and for August, the Chandler Arizona Real Estate market increased sales to 392 homes, condos and townhomes sold for the month. The average sales price was lowest in April 2009, at $211,647, but has increased each month since then.
Chandler Arizona Real Estate is red hot right now. There is a lingering concern off more foreclosures entering the market that are being held back by the banks, if this is the case we may see an increase in inventory as soon as those REO properties are release for sale. We have attached in this blog are some graphs of the Foreclosures in the Chandler area from Realty Trac.

To view Chandler listings go to http://www.thomasdavisgroup.com/ and to get set up with a free list of Chandler foreclosures sign up at www.theazforeclosurelist.com