Is it cheaper to renovate your home or to find another? Christine Long does the maths.

Sydney's hot property market has everyone scratching their heads and throwing big money around. Whether you sell your home to buy something bigger or renovate an existing home, the figures end up looking equally horrible.

Soaring labour costs and the difficulty of finding a decent builder (preferably one who shows up and doesn't behave like a prima donna) are a big negative for renovators.

Movers, on the other hand, have to stump up tens of thousands of dollars in stamp duty with nothing to show for the privilege.

Such are the conundrums home owners face all over town.

As Money's case studies illustrate, there is rarely a single answer to the dilemma of whether to renovate or move. For most people the answer comes down to lifestyle issues, number-crunching and simple convenience.

Moving
It may be tempting to move, but as Stacey Townsend found, it can require significant sums of money - and not just in additional mortgage repayments (see "Time to Move On").

As a rough rule of thumb, you will need to allow about 7 per cent of the purchase price of the new house to cover the costs.

Rising property values in NSW means one of the most painful outlays is likely to be the stamp duty payable on the new property. In NSW, stamp duty on a purchase is levied on a sliding scale, starting at $1.25 per $100 or part thereof for properties of less than $14,000; and rising to $40,490 plus $5.50 per $100 or part thereof above $1 million.

Someone buying a house for the median price in Sydney of $460,000 would pay $16,190 in stamp duty.

Mortgage stamp duty of $5 plus $4 per $1000 or part thereof above $16,000 is also payable. For the average home loan in NSW of $220,000, that would cost $821.

Another big cost associated with moving is the real estate agent's fees. Typically they will gobble up 2 to 3 per cent of the sale price of your home.

The cost of finance can also add up. Brooke Cummins, a spokeswoman for Mortgage Choice, says in a worst-case scenario a borrower may have to pay up to four months in loan repayments in exit or break fees.

However, it is more likely costs will include a new application fee of about $600, switching costs of between $300 to $600 and a valuation fee of $200, she says.

If the borrower's equity in the new property drops below 20 per cent, there will also be the cost of mortgage insurance - roughly 1 per cent of the amount borrowed.

As the table shows, other costs include removal costs, legal costs, transfer costs and fees for transferring utilities.

On the examples we have used, the changeover costs from the sale of a $260,000 property and the purchase of a home for $460,000 would be $30,139.

Renovating
Faced with these costs, many people like Alan and Anne Bishop (see "Doing it Yourself") are choosing to stay at home and renovate instead.

According to estimates by the Housing Industry Association, 67,000 renovation jobs were carried out in Australia in the year to March 2003, worth $4.1 billion.

However, as Simon Tennent, the chief economist at the Housing Industry Association, explains, these figures only reflect jobs carried out by holders of home warranty insurance, with the total amount spent by Australians on renovations and additions about $17 billion.

For those who decide to go down the renovation route, the road can be anything but smooth.

As the Real Estate Institute of NSW points out, there is always the danger of "overcapitalising" on your home.

John Edwards, the managing director of Residex, says to assess the risk of overcapitalisation potential renovators need to consider the property values in their suburb and street. If renovations are likely to push their property towards the upper quartile in values in the area, they may be better off selling, he suggests.

"An unrenovated house can actually achieve a much better result at auction than one that has been renovated," says Edwards.

Similarly, potential renovators need to think about the tastes of future buyers and the character of the house before pouring money into a project.

David Lawrence, the state manager at Archicentre, tells the story of a Federation house in Vaucluse that was failing to attract a buyer. He put it down to its "obviously new" stainless steel and granite kitchen. "It was totally out of character with the style of the house."

Those who decide to forge ahead with renovations can expect to pay anything from $20,000 for a new bathroom to $150,000 for a second storey addition, according to the HIA.

However, potential renovators need to be aware these figures are based on an average per square metre cost of $1300. Many people are receiving quotes significantly higher.

Mike Bartlett, the national manager of the building cost information division at Reed Construction Data, says: "At the moment there is a lot of work around and that has been the case for about the last four or five years, so prices are currently at historically high levels." The cost of building materials has risen little in the past year, but the cost of labour is soaring as the building industry grapples with the crisis in the home warranty insurance industry.

"Most builders now start off at about $2000 per square metre," says Bartlett.

Archicentre's Lawrence says one of its members recently put a job out to tender and five builders took the tender documents.

"Only two ever came back with quotes, only one had insurance and the figure quoted was $4000 per square metre."

Similarly, Tennent says people should be aware some specific trades can be very hard to find - such as bricklayers, ceramic tilers and, in some cases, plasterers.

"A bricklayer before the Olympics was [charging] 70 cents a brick. At the moment they are [charging] $1.50 a brick," he says.

With delays often occurring between drawing up plans and getting council approval, renovators can find they are hit with additional costs as a result.

As Ben Gerstel, the principal of Ben Gerstel Architecture, says: "Invariably you are not building for six to nine months and costs will go up."

Building costs and materials will represent the biggest part of the cost of renovating, but other costs such as council fees, engineering inspections, building consultants and architects will need to be factored in.

So how can you prevent budget blowout?

Consider alternatives
Pietro Scalise, a building consultant and licensed builder at the Sydney Building Information Centre, says it is possible to tackle renovations as an owner-builder. However, be aware that owner-builders must fulfil certain requirements. If the works exceed $3000 in value and require council approval, you will need a permit.

Any owner-builder supervising a project costing more than $12,000 must also complete an approved course at TAFE NSW or the Sydney Building Information Centre before a permit will be issued. In SBIC's case the cost of the course varies from $175 to $295, depending on the applicant's experience.

An owner-builder may also need to purchase insurances and they are not permitted to do site drainage, plumbing or electrical work.

Scrutinise the contract
As Scalise points out: "Usually most of the problems arise from poor contracts that do not spell out what is included and what isn't."

For instance, he says, a lot of contracts have a provision for penalties if builders do not complete on time. However, he adds: "If the client does not state a reasonable sum of money it will automatically be set at $1 per day."

Build in a contingency
Often it helps to build a contingency buffer of between 10 to 15 per cent into your budget to cover unforeseen costs.

Be flexible
If your wish list is too long, it may be possible to do the renovations in stages, says Lawrence. "More of the budget could be put into the fabric and structure of the extension," he says, and things like the kitchen and bathroom either done on a shoestring budget or left to do later.

Doing it youself

About 15 months ago they put together plans to add a couple of extra bedrooms, a bathroom, more garaging and extra living space to their three bedroom house.

But rather than forking out about $120,000 to transform their home, Alan Bishop estimates the final bill will be about $75,000.

The secret is he did most of the work as an owner-builder.

As he explains, the couple, who have three young daughters and another one on the way, did consider selling up and moving before deciding on the owner-builder route.

"We were looking to buy a house with four or five bedrooms, but by the time you pay the stamp duty it costs a fortune. At least this way we could build something we wanted," says Bishop.

As an electrician he was able to access materials at trade prices, and he also did some contra deals with friends - a draftsman and a plumber - to help keep a lid on costs.

Time spent hunting out the best possible deal on everything from materials to insurance also paid off.

"You've got to be prepared to shop around and not just accept the first price," he says.

The 38-year-old admits the project has taken longer as an owner-builder, but his cost-saving tactics have been worthwhile.

"I've got another $45,000 in my pocket I probably wouldn't have had."

Shocked by building costs

A growing family and a garage stuffed full of equipment for Paul's property maintenance business inspired their plans to add a bedroom, a bathroom, extra living space, a deck and extra garaging space.

But the couple, both 32, were in for an unpleasant surprise when they took their plans to local builders.

"The prices were ridiculous. We had budgeted for $100,000 to $120,000, and two [of the quotes] came back at $150,000."

Although they could have revised their plans to reduce the cost, they decided on a radical rethink instead.

"I didn't want to do a half-measure," says Rankin.

Demolishing and rebuilding with a project home was another option, but they were concerned they would end up overcapitalised. Instead they have decided to put their house on the market and, once it has sold, go in search of a property that better suits their needs.

In the meantime they, and their three-year-old son Andrew, will move into a rental property.

Their strategy means they won't need to worry about bridging finance, but there are likely to be other complications, with Nicole expecting their second child in October.

"We're probably going to have a very young baby while we're moving, but you've got to do it," says Paul.

Time to move on

After buying the house in 1997, they spent less than $10,000 renovating the bathroom, pulling up carpet, polishing the floorboards and painting throughout.

The renovations included putting in a spa bath. Their main aim was to make the place "liveable", says Stacey Townsend.

"We decided to do the bathroom when I was pregnant with our first baby, and it was finished off while I was in hospital having the baby."

About three years later, the couple found their needs had changed.

"We've got two kids now and their toys were taking over," says the 33-year-old firefighter.

They were faced with paying for a new kitchen and extensions or finding a new home.

"We looked into the kitchen, but my husband was not really happy with the street we were living in. He thought there was too much traffic for the kids."

With Geoff working in Japan as a rugby coach, Townsend found their new house on her own.

Although she says it was hard to leave her spa behind, she couldn't be happier in their new three-bedroom duplex, about a kilometre from the beach.

"The place we sold needed a whole lot of work, because it was a 60-year-old house. The one we bought is new, so it's a big improvement."

Stacey estimates it cost about $30,000 in stamp duty, removalist costs, agent's fees and transfer fees for their amenities to make the move. The only other cost? "My mental health!"

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