More than three years ago I wrote an article about reasons to sell your house. My focus back in 2012 was on not being swayed by the near constant media focus on the housing bubble. I talked about how to avoid media hype and focus on what is actually happening in the market. My reasons for why you should sell your house were about your situation, more so than the characteristics or attributes of your house.
Flash forward to the spring of 2015 and the situation hasn’t changed much – but this time I’m going to tell you why you shouldn’t sell your house. In case you are wondering, yes, I’m still a Realtor and yes, I realize this isn’t the way I’m “supposed” to do it. Bear with me and see if it doesn’t make sense by the end!
As you know, it is still very much a seller’s market in many parts of Ontario and housing prices have continued to rise. The latest stats from the Toronto Real Estate Board put the average price for a detached home across the GTA at $814,000. This is up a staggering 11.4% since April, 2014.
While the market dynamics now are similar to three years ago, the media focus has moved on from predicting an imminent housing market crash. I suppose after doing that for a number of years in a row, both the journalists as well as the readers are getting a little sceptical about the accuracy of their predictions.
The focus over the last year has been more on the impact of low inventory of homes for sale combined with historically low mortgage rates. The resulting frenzy of multiple offers, double digit sale price increases and bully offers has been the topic of many articles lately.
It has also been a topic of discussion with me and my clients, colleagues, friends – even their children. Given most of their children are still fairly young, it isn’t the most nuanced of conversations, but it is happening. I had a six year old tell me the other day “This house is stupid.” and I’m pretty sure he was talking about the lack of play space in the backyard.
As a Realtor, I discuss real estate with people every day. A common theme these days is whether it is better to stay put rather than sell, due to the difficulty on the buying side. Some people I spoke with who were considering selling their home decided to renovate instead.
A Toronto Star article from today talks about this very topic and how there was a recent poll showing Canadian homeowners plan to spend $17,000 on renovations this year.
I know that as a Realtor I am supposed to be biased towards people selling their homes rather than staying put. It’s tough for me to give an opinion on this topic without it being taken with a healthy grain of salt.
Despite this, I’m going to give you my honest opinion. I’ve built my business on being focused on what is best for my clients, on being responsible for what comes next, not just what gets me the biggest or quickest commission.
So here it is in plain terms – the straight goods, the top 5 reasons to not sell your home.
You should stay put and renovate if:
- The lot size is big enough to accommodate an addition that gives you the space you need.
One of the most common reasons people move is because they want more living space – bedrooms, bathrooms, bigger kitchens, more closets and so on. If your current home sits on lot that would allow an addition that would give you that space, renovating instead of moving is a real option.
- The cost to renovate and the current (pre-renovation) value of your home is significantly less than the sale price for new builds in your neighbourhood.
The highest price on a street for comparable properties is almost always the newly built home. If you are planning on a big renovation to your home, you need to make sure that the cost for your renovation and how much your house is worth before you reno, is a fair bit less than new builds of a similar size. If your home is worth $800K now and you are budgeting $150K for a major addition, make sure that new builds are selling for well over $950K. If a builder can buy a dilapidated house on your street for $600K and put up a new build for $450K, don’t renovate your house. Your $950K house with some original features (and some older aspects) will not command the same price as a new build. Look for at least a 25% premium over the value of your renovated home compared to a new build. Remember it isn’t how much of a mortgage you have on your home, it’s how much it would sell for in “as is” condition.
A major factor that influences the cost and overall value of the renovation is your current home design and the updates you have done already. This means considering whether the layout of your home makes additions easier or harder. If adding a bathroom and walk out closet to the 2nd floor of your home means building out an addition, which means new underpinning for an existing addition which wasn’t built to support the weight, which means tearing out the renovated basement lounge – well, you get the picture. If the design and updates you have already done don’t conflict with the renovations, then you can do the work for less money and avoid paying to tear out something you just paid to renovate recently.
- You are willing (and able) to do the renovations that add real value.
Apart from having the space and making financial sense to renovate, you need to be willing to live through a major renovation. When I was a teenager I lived through a major addition being added to our family home. As an adult I’ve lived through significant renovations in my homes. It always gets worse before it gets better. If your work or family demands are such that you can’t tolerate things taking longer, being less organized and costing more during the renovation period, don’t do it.
Keep in mind that the renovations that add real value are often very expensive and disruptive. A new kitchen or bathroom is a great selling feature but you need to find somewhere else to cook and bathe for a few weeks or months.
- You want to grow old there. Or at least older.
A large renovation can absolutely add value to a home but it may take a few years before the cost to do the renovations lines up with the value it added to the home. There are significant costs in any renovation for structural work that is not generally visible when completed. Adding 1,000 square feet to your home means your home will sell for more. The cost to prepare the original part of your home to accommodate the extra square footage isn’t money spent directly on the addition, but has to be paid for nonetheless. Before embarking on a large scale renovation, you need to be certain that you plan on staying there for a significant length of time. I have had clients who moved rather than finish the basement as the cost to dig out, expand and finish that space far exceeded the value they would receive in a shorter time frame. I am positive the new owner will do the work as they can envision enjoying that space for 10 to 15 years before they realize the value when they sell.
- Location, location, location.
There, I said it again. This is one of the simplest considerations to understand yet it is one that is often overlooked. If your home is located in a good neighbourhood, on a good street and in a good part of that street, then staying can make a lot of sense. If you are located two houses down from a commercial strip, or if your street faces city-owned industrial buildings or if your neighbourhood is split by train tracks – consider whether investing money into a big renovation is the wisest choice. When the market cools down – and it eventually will – your lovely, big home will still be located in the same spot. There is little benefit to owning a house “worth” $1 million on a street that is now selling for $700K.
In a similar vein, if you bought a home a few years ago that you got at a great price because of flaws on the street or neighbourhood that are still around, consider that now might be the best time to sell and move to a home in a better neighbourhood or street. In a seller’s market, homes that are in flawed locations are being bought at very high prices by people whose agents are doing them a disservice. When the market corrects itself, it is homes like these that will lose the most value, as buyers with a sudden range of homes to choose from will pick homes in better locations.
At the end of the day, the reason you decide to stay in your home and renovate rather than move is fundamentally a financial decision. Very few people enjoy living through massive renovations or taking the time and energy away from other parts of your life to oversee contractors, dealing with unexpected complications and paying for the whole damn thing.
Moving isn’t always the best decision but you need to make sure that the costs of turning your current house into your dream house isn’t in fact more expensive.
I hope you found this article useful and that you appreciated a Realtor telling you when you shouldn’t move! If you think that moving might in fact be the best decision for you, I’d love to be responsible for what comes next.