Buy a New House or Renovate in 2025: Which Option is Better for You?

When interest rates are going up, home values are going up, and there aren't many homes for sale, it can be hard to decide whether to move or renovate. Moving costs usually include 5–6% for the agent's commission, 20% for the down payment, 2–5% for the closing costs, and moving costs that range from $1,400 for a short move to $5,700 or more for a long move. Renovations can cost anywhere from $4,000 for small kitchen updates to $70,000 or more for adding on to the house. Knowing whether your family will outgrow the renovated space, how projects affect property values and taxes, and whether living close to work and schools justifies higher costs will help you make decisions that are in line with your long-term needs.

Key Takeaways

• Moving costs go far beyond the purchase price. For example, on a $250,000 sale, the real estate commissions would be $12,500, the closing costs would be 2-5%, the home inspections would cost $300-500, and if you sell for a profit, you would have to pay capital gains taxes.
• The cost of renovations depends a lot on the size of the project. For example, kitchens can cost anywhere from $4,000 for a small remodel to $60,000 or more for a high-end update. Bathrooms can cost $2,500 to $55,000, finished basements can cost $11,000 to $30,000, and home additions for growing families can cost $21,000 to $70,000, depending on the materials used and how complicated the project is.
• Market conditions have a big effect on when people make decisions. For example, in 2022 and 2023, home values will rise quickly, which is good for sellers but bad for buyers because there isn't much inventory and interest rates are going up. Also, supply chain problems and a lack of workers make renovations more expensive and take longer.
• Attachment to your neighborhood and community is very important. For example, living close to work can make your commute less stressful, and staying near good schools and friends can help you deal with higher property taxes or renovation costs in your current location.
• When deciding whether to renovate, people look at the return on investment (ROI). For example, projects that add living space, like finished basements, usually increase property value more than cosmetic updates. However, expanding square footage may also raise property taxes and require permits that cost between $400 and $1,800, depending on where you live.

Sooner or later, most homeowners debate whether to buy a new home or renovate their existing one. It's a challenging question with financial, practical, and emotional implications. Complicating matters are the extraordinary dynamics affecting the U.S. real estate market and home improvement industry in 2022 and beyond (like rising interest rates, higher home prices, increased home equity, and new home supply shortage).

Moving is seldom easy. According to a 2020 survey, it's the most stressful of life's events, more than going through a divorce or having children. Staying and remodeling is often challenging as well. 85% of people surveyed stated that home renovation is stressful, with respondents citing project planning and potential budget overruns as specific anxiety triggers.

You want to feel like you made the right choice when asking whether it's better to stay or move. There's often no simple answer, which can compound the stress. But by thinking through all the major factors involved, you can make a confident decision that's right for you and your family.

Buying a house vs. renovating: Questions to ask

"Stay or move?" is often not just a practical question but an emotional one. We grow to love homes, neighbors, and communities. They're part of who we are, and it can be hard to start over in a new place. Adding children to the mix --- with their attachment to schools, friends, sports, and other activities --- only intensifies the emotional challenge of a move.

"Stay or move?" is not just a practical question. It's an emotional one.

To address this question effectively, start by breaking it down into smaller ones about your finances, motivations, and needs. Do I have enough money to move or renovate? Begin by checking local real estate prices in your desired neighborhood and assessing your current home equity for potential cash sources. With recent sharp increases in home values, consider how this affects your purchasing power. Don't overlook additional costs associated with home buying. Use a home affordability calculator to gauge your budget and assess whether a cash-out refinance could benefit you.

• How will moving affect my mortgage? Depending on your current mortgage terms and when you bought your house, a new mortgage may offer lower monthly payments. However, be mindful of rising interest rates, as delaying could increase your overall mortgage expenses.
• How will relocating impact property taxes and insurance costs? Moving to an area with higher property taxes and insurance rates compared to your current location could significantly impact your budget. Research these costs to fully grasp the financial implications of your move.
• How important is the neighborhood and community to me? Consider the advantages of proximity to work or schools, as well as the potential benefits of being closer to family and friends. Factors like shorter commutes may offset higher property taxes in a new area, potentially reducing overall stress.
• How much renovation work is needed? If you're looking to move in immediately, budget for necessary repairs. For fixer-uppers, conduct a thorough cost analysis of potential renovations before making any decisions.
• Will moving affect my overall cost of living? While moving within a town might not impact costs significantly, interstate or regional moves can influence expenses across various aspects of daily life.
• What are my family's long-term plans? If you anticipate expanding your family or outgrowing your current space, moving sooner rather than later might be prudent. Consider the emotional impact on children when relocating away from their schools and friends.
• Will renovating meet my family's needs? Economically, compare the costs of renovating to those of moving. For instance, adding a bedroom or bathroom might be more cost-effective than relocating. Renovations preserving your home's basic layout generally cost less than those requiring structural changes or engineering work.
• Will renovations increase my home's value? Projects adding living space, like finishing a basement, typically boost property value more than purely stylistic updates such as a luxury kitchen. Keep in mind that expanding living space might also raise property taxes.

By addressing these questions methodically, you can make informed decisions regarding your housing options.

How much does it cost to move?

Moving costs can vary significantly based on several factors:

• Real Estate Agent Commissions: Typically, 5%-6% of the sale price, totaling around $12,500 for a $250,000 home sale.
• Down Payment: Often at least 20% of the home's purchase price or lower with added monthly private mortgage insurance (PMI).
• Mortgage Prepayment Penalty: Potential fee if you close an existing mortgage before its term ends.
• Home Inspection: Generally, $300-$500, helping avoid unexpected post-move repair costs.
• Repairs: Ranging from minor touch-ups to major structural fixes, costing from hundreds to thousands of dollars. Realtor.com.
• Closing Costs: Usually 2%-5% of the sale price, covering title insurance, appraisals, taxes, and more. Closing costs include various fees related to the sale
• Movers: Costs vary widely; local moves average $1,400, while long-distance ones range from $2,200 to $5,700. Recent article in Forbes
• Capital Gains Tax: Payable if your home sells for more than you bought it for, affecting your tax liability.
• Two Mortgages: If selling your current home lags behind buying a new one, managing dual mortgage payments is necessary.
• New Appliances and Furniture: Expenses for items not included in the home purchase, potentially requiring professional installation.

Additionally, consider potential costs for new furnishings and yard maintenance tools if your new home offers more space or different layout requirements.

How much does it cost to remodel?

As with moving, renovating your home has a significant cost. Even a seemingly simple project, such as updating a bathroom, can run several tens of thousands of dollars. If you have the skills (and time), you can do some or all of the work yourself.

There can be a wide range of estimates for common home renovation projects. Here's what you can expect:

• Kitchen — The average renovation cost for a kitchen range from $4,000 for small remodels to $60,000 for high-end projects. The most significant expense is cabinetry and hardware, accounting for nearly one-third of the cost of most projects.
• Bathroom — The average cost of a bathroom remodel ranges from $2,500-$25,000, with some high-end projects reaching $55,000 or more. Cabinets are the most significant expense, accounting for nearly one-third of the cost.
• Living room and bedroom — Bedroom and living room renovations range from $1,500 to $5,500 and typically involve just paint and flooring updates.
• Basement — Finishing your basement can range from $11,000-$30,000 on average. If the project involves installing a bathroom (including fixtures, rough-in plumbing, and hiring a plumber), expect costs near or beyond the top of that range.
• Building a home addition — Adding living space to your home, perhaps to support a growing family, costs between $21,000 and $70,000. The exact cost depends on the extent of the addition (will it include plumbing?) and the types of materials you choose.

Other costs and considerations when remodeling

Also consider the cost of permits and inspections. These range from $400-$1,800 based on the project and the municipality. Check with your local building department to understand what's needed before you kick off your project.

Depending on the size and extent of your project, you may need to think about staying in a short-term rental or hotel or having meals out until the work is complete.

A remodeling project can also be an opportunity to make your home more energy efficient. Choosing efficient appliances and lighting, adding insulation, or replacing windows can all help you live greener and perhaps save some money in the long run. The U.S. Department of Energy offers guidance on energy-efficient home design. You may even be eligible for rebates or tax breaks.

While moving is stressful, remodeling is rarely a cakewalk. Even if you hire reliable professionals, you can expect many projects to last several weeks to a few months. It can be noisy and dusty, and you'll lose access to at least part of your home for some time. Make sure the contract you sign with a remodeler includes a clear estimate of costs and timing, so you know what to expect.

Calculating the return on investment (ROI) of your remodeling project

When thinking through what remodeling projects you'd like to do, you might consider how those projects will add to your home's value. When you think of your project this way, you think of it as an investment — a true home improvement.

Opendoor has a handy tool to help you calculate ROI for many common home improvement projects. The tool lets you access data from your own city for a more accurate estimate.

Moving and remodeling in 2022-2023

Home values have skyrocketed since 2021. That's great for sellers, who are commanding more money than they might have ever imagined for their homes. It's a challenge for buyers, who see their options limited by dwindling inventories, high prices, and rising interest rates. Zillow expects the home price trend to begin cooling off by mid-2022 but nevertheless forecasts 14.9% growth from April 2022 to April 2023. Experts advise working with a real estate agent, being flexible in your home search, and considering alternatives to traditional mortgages.

Meanwhile, the pandemic kicked off a whammy of a situation in the home improvement industry. Many homeowners turned their attention to renovations just as supply chains for building materials became disrupted and the industry started dealing with a severe labor shortage. These problems will likely persist through 2022 and beyond. So, if you're committed to staying and renovating, have patience, be flexible, and expect to pay more once you find a general contractor and your project gets underway.

Be confident in your decision

Like many of life's big questions, "should I move or stay?" often has no simple answer. You can gain confidence in your decision by discussing your needs and answering the questions in this article with your spouse/partner and family to help with this practical and economic decision.