Financial Literacy

If you are moving due to an employment-related relocation, the decision to sell may already be made—you and your employer have decided that relocation is in your cards. If the relocation is temporary, you may decide to rent out your home until you return. If your company doesn't offer a third party buyout, you may encounter difficulty selling if your market is soft.

Certainly you're going to want to weigh the financial considerations of selling. If it is just more space you're after, you might want to consider remodeling.

Financial Considerations

• Using a real estate agent to sell your home, as most people do, could shave off anywhere from 5 to 8% of your selling price in real estate commission. If you're trading up, make sure you factor that calculation into your estimated sales proceeds, since it will materially impact how much replacement home you'll be able to afford.
• Take a look at the housing market in your area and in the area you plan to move into. Whether trading up or down, the prices in your new area will have a significant effect on your checkbook. And if homes are appreciating rapidly where you currently own but not as quickly where you're thinking of relocating to, selling may not be your best bet: It might make more sense to hold on to your appreciating asset.
• Are you trading up? Unless you plan on living in your new home for at least three to six years, it is unlikely that the home's appreciation rate will pay you back for the costs you incur in selling and trading up.
• Are you trading down? One of your reasons for trading down may be to free up cash for other purposes. Do you already have substantial equity in your home? Equity is the difference between what your home is currently worth and what you still owe on it. If that number is considerable, then tapping into it via a home equity loan or line of credit may give you the cash you need while allowing you to stay put. Remember, when you sell, some of that equity will be eaten up by closing costs.
• Is the market in your area soft? Consider renting the property out for a while until things get moving again. This can contribute to your cash flow (although it does create the added headache of becoming a landlord.)

  IMPORTANT NOTE: Renting out your home has tax implications. Consult with your tax professional if you are considering it.

• If the home has been on the market for a long period of time and it is not moving, consider taking it off the market for a while, say three or four months. Not only might the market improve—you will be showing your home to a whole new crop of buyers. It is a new listing for them!

Remodeling

If space is a problem, trading up is usually the most expensive solution. Consider not only the cost of the new home, but the cost of the move itself, the commissions and closing costs which make a little extra room cost a lot of extra money! Consider remodeling if you're happy with your neighborhood and the overall structure and condition of your present home. Can your lot support an addition? Do the local building codes allow it? Would the costs involved in remodeling outweigh those involved in moving?

If you think remodeling or adding on to your existing home might fit the bill, consider these general guidelines:

1. Keep your improvements consistent with the general character of the home and neighborhood.
2. Keep your budget in perspective. You don't want to spend more money than it would cost to upgrade and move anyway. By the same token, your goal is to live comfortably. If you skimp too much on what you spend, you'll be out the cash and still be unhappy.
3. Never improve your home to the point that its value far exceeds that of others in the neighborhood.
4. Keep all records. Your improvements add to the tax basis of your home.

Cost-Effective Remodeling

Confused about whether to fix up or trade up? Here are some general guidelines about what works and what doesn't.

Projects that add the most value relative to money spent:

• converting an attic or basement into extra living space
• adding a new bathroom
• modernizing a kitchen
• room addition

Projects that add the least value relative to money spent:

• new storm windows or doors
• a swimming pool
• extensive interior decorating
• a sun room addition
• new siding