If you are like us, you are probably on the lookout for national headlines about whatever industry you work in. We are fascinated and, at times, dismayed by some of the national headlines and common lore about real estate. Given this, a recent article from the NY Times really caught our eye: Retirees Expect Their Home to Be a Financial Safety Net. They Shouldn’t. The article is linked here if you have a NY Times subscription but if you don't the basic claim behind the article is that older folks don't do as much remodeling to their homes and so then end up selling their homes for less than younger sellers. Among other things, it says that: "A paper from the Federal Reserve Bank of Philadelphia found that older homeowners, particularly those 70 and up, earn lower prices when they sell than their younger counterparts. The gap increases with age; an average 80-year-old seller would likely get paid 5 percent less than a 45-year-old, all other factors being equal." True as this may be, let's look a little closer at what's going on there. It's well known among our local Realtor community that larger home remodeling projects rarely, if ever return 100% or more of their costs on the resale price of the home. A quick Google search confirms this: |
The article goes on to imply that younger homeowners are making the smarter financial move by doing updates to their homes. However, when those younger homeowners are remodeling to their homes, they are likely losing anywhere from 30%-40% of the cost of that project. Using average rates of return, a quick example would be doing an $100,000 remodel to only net a $65,000 increase in the sale price of one's house.- a net loss of $35,000. So yes, a remodeled house sells for somewhat more than a non-remodeled house, but remodeling a house with the intention to increase one's profit on a sale rarely works in one's favor. Sadly this feels like irresponsible reporting from the New York Times. It would be easy to see how this article would mislead older homeowners, or convince the children of older homeowners who often times aid in the sale of an aging parent's house, to take on a large amount of financial risk, months of stress and strain (show of hands of anyone who's done a major home remodel - we've been there and we know some great therapists) with little hope of coming out in the black on the other side. Our elders have earned their peace. Please, let's not terrorize them with poorly researched suggestions. When we are meeting with potential sellers, one of the first things we do with them is we walk through their home to see what updates or maintenance they may need to attend to prior to listing. Sometimes there are projects like tidying up some paint, refreshing the mulch in flower beds, or replacing old worn out carpet that likely return a bit more than they cost to have done. However, it is unlikely that doing large remodel projects will help a seller come out ahead money-wise. And sometimes a big remodel project can make sense. One of the primary reasons we buy homes it to have control of the place where we live and to be able to edit it in ways that best suit our lifestyle. If doing that dreamy kitchen or bath remodel will be something that you'll enjoy for years to come, then go for it. It's probably worth some expense to be able to enjoy those updates. Our advice is this-if you want to do a big remodel for you, do that project. Remodel the kitchen because you want to. Do the big landscaping project, the bathroom remodels, and the new deck because you love the home and want to love living there. Don't do it the remodel simply to make money because, unless you are a contractor and you do the work yourself, you probably won't come out ahead. Most people find that remodeling projects are more arduous, time consuming and stressful than they seem on the front end. Maybe skip the project and go on vacation instead :) I am curious- do national articles sometimes mislead folks about the industry you are in? I'd love to hear about it. Until next time! Allison and Ken |
