Moving vs. Improving/Adding a Second Story

We bought a house a couple of years ago in Oakland when we were scared that if we didn't pull the trigger we'd get priced out, and now we've realized we made a lot of compromises that are making our lives a little more difficult! The house is on a beautiful lot, we have a great neighborhood and location, and we've already put significant money into structural fixes and other improvements, but it's small for our needs, and if we have another kid or need to have our parents come live with us (both very real possibilities) then we'll have to either move or expand.

Anyone planned a major home addition recently or done the cost/benefit analysis for move vs. addition? With house prices so high and inventory low we're wondering if an addition makes more sense, where we could put an in law unit in the basement and do everything exactly how we want, but we also wonder if prices might drop and it would make more sense to wait a bit and just move. No one has a crystal ball but would love to hear thought processes, especially for anyone who's been going through this same decision recently.

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Shockingly we bought a house that wasn't perfect a few years ago. But the cost of moving seemed excessive when we factored in transfer tax, sales commission, cost to hire movers, cost to make make the house presentable, etc... We talked to an architect about building an ADU. One thing he said that stuck in my mind is that a rule of thumb for cost to build would be around $600/sqft. That was a year ago. Homes around us go for more than $600/sqft so it seems like doing an addition made more sense than moving. The reality is that I don't know too many people who are in their perfect house. Everybody has had to compromise.

As a retired architect, I can tell you the current political climate is very hospitable to new ADU's (accessory dwelling units), and I hear contractors are eager to build them. I've never seen this before, and suspect the timeframe is limited. 

One thing to keep in mind when doing the cost benefit analysis of moving versus remodeling/adding, is that in staying put, your property tax basis remains intact (it will be adjusted for the improvements, but the basis remains intact). If you move, the property tax for the new home with begin at the current baseline. This is the deciding factor that keeps many Californians in their homes.

Hi!  We went through a similar analysis.  The decision you will be making in highly complicated and dependent on a few things.  Would love to speak offline with you about our situation - we went through a complete remodel of a home we purchase recently.  Private message me for contact info.

We are in a very similiar position (great view and yard, walkable to a great elementary school, barely fits now). We did get some bids for converting our unfinished basement space into essentially in in-law suite and were shocked at the estimates. We got quotes from middle end contractor and design/build firms that all came in at $200,000+ for finishing a roughly 300 sq space that is half at ground level. Those are actually more expensive than putting an ADU in our backyard (those estimates we got ranged from $150,000-$200,000. I can't tell you what makes sense for your family but I can share our decision making process. We have decided to wait for a year and see how we feel and what the market is like. If we really love the house and it would cost more than $300,000 to move to the house we need (increased purchase price, commission etc), we'll do the remodel. If not, we'll move. I've done a major kitchen remodel before and it was horrible to live through, so personally I'm willing to pay for NOT having to live through an even longer remodel (we were told it would take 6 months of actual construction). 

We converted our 2/1 to a 5/3 about 3 years ago. It was a fixer when we bought it, so we knew we'd have to do major work including the foundation.

You like your lot and your neighborhood, if you are in an area with good resale/home value I would seriously consider staying and investing in expanding. It will only increase your home/resale value. If however, you are so-so about your house and hood, you might want to consider a move. Just know that it is an insanely crazy time to buy right now, with prices high (and rates low) and lots of competition.

While you are right that we don't know what will happen next, all indicators point to a slowing but no significant drop in the Bay Area RE market.....good luck!

You would probably be better off moving.  Adding a second story starts with the questions of can you do it?  Will the city allow it, will the neighbors and can you existing house support a second story.  Then you have the issue of finding a contractor.  And an even harder time finding a good one.  Will you be living in the house during the construction?  Probably not.  So now you are going to have to live someplace else for 6 months to a year. Then will you house fit in with the rest of your house and the other houses in the neighborhood?  Will your house be double the sq ft of all of the other houses?  So your house no longer fits in?  

With covid prices in the East Bay have remained strong.  I would have thought prices would have dropped with covid and end of summer but that's not what's happening.  I don't get it, but people are paying over asking. Could it be because interest rates are so low? You will probably never see interest rates this low in your lifetime ever again.

If times were different I might say add the second story.  But the way things are right now in the Bay Area I would move.

Hope this helps. 

Also consider adding out, rather than up (or out with two stories) if you have enough yard.  It can be somewhat cheaper per sq. foot because the addition gets its own foundation, rather than potentially having to beef up the existing one.  Our property slopes down in the back; we added a split level to the back, and love it. It also looks much less imposing from the sidewalk that just going straight up would have been. (From the sidewalk, you can't even tell it's two stories).

One other thing to consider - the costs for temporary housing during the (probably many) months when the work is being done.  When we built off the back, we were able to stay in the house for all but a couple of days, so that saved both money and hassle.

We’re going through this exact same thing.  We’re on a huge lot with a small house and thought that adding another bedroom and bath would solve the problem with our 2/1.  We converted the garage a few years ago so my daughter would have her own room since she was sharing a room with her brother.  We’ve met with 4 architects now and all of their estimates have been around $300-400k for the add on, which seems ridiculous to me.  A contractor friend told me that construction materials have doubled during lockdown, but also everyone wants to do home improvements now so everything is much more expensive. So do we move or just suck it up and do the add-on? Every house we’ve looked has sold for at least $400k over asking price and then there’s the huge jump in property taxes to think about.  We’re probably going with the add-on, once I can get over the sticker shock.