Types of Home Improvements that Affect Your Appraisal Value

//Types of Home Improvements that Affect Your Appraisal Value
Types of Home Improvements that Affect Your Appraisal Value 2017-10-31T17:01:14+00:00

Types of Home Improvements that Affect Your Appraisal Value

The Effect of Home Improvements on Appraisal Value

After discovering that Meridian covers the appraisal costs for all pre-selected candidates, you're probably wondering what your home improvement and maintenance projects around the house are going to do to your property value.

Thanks to a rebounding economy and real estate market, more people are remodeling and making home improvements. And that includes you and your neighbors.

In the second quarter of 2016, The Remodeling Market Index reached 53%, according to The National Association of Home Builders (NAHB).

Nielsen Scarborough reported that 53% of US adults made some type of home improvement in the last 12 months – and 56% spent $1,000 or more on developments.

What are people spending their money on? According to the NAHB, people are making major additions and alterations, minor alterations and repairs, as well as regular maintenance and repairs.

All this is good, since you recoup any money you put into your house, right?

Well, yes and no. Before I explain, let me define 4 terms associated with a home's value that are often used interchangeably but mean very different things.

The 4 Home Values

  1. Appraised value – This opinion of value is determined by a trained and certified professional. As the saying goes, the opinions of people can vary! Three different appraisers can appraise your home on the same day and get three different values.
  2. Assessed value – The value given by the local government in order to determine the property tax owed. Appraisers and home lenders don't consider tax-assessed values when appraising homes.
  3. Market value – The price a seller can expect to receive for their home on the open market, similar to a listing price.
  4. Sale price – The final price a home actually sells for. Sale prices are what matter most to home appraisers when valuing a property.

Unfortunately, most common home improvements have little impact on a home's appraised value.

Many homeowners believe their weekend home improvement projects automatically increase the value of their home, but expectations hit a wall when the appraised value of their home is much lower than anticipated.

Why Appraisers Don't Look at Home Improvements

When an appraiser determines the value of a home, they don't take into account your new Berber carpets, your new glass-paneled kitchen cabinets, or even your new roof.

This is due to 2 reasons:

  1. Replacing a roof, furnace, or carpet is considered maintenance, not an improvement that adds to the appraised value. Maintenance is expected and therefore doesn't increase value. However, if you neglect the general condition of your home, causing "deferred maintenance," the appraiser will adjust the value accordingly and home loan financing will become more difficult.
  2. Appraisers primarily base their opinions of value on broader factors, such as:
    • Age of the home
    • Square footage
    • Style (i.e. ranch, colonial, Victorian, condo, duplex, etc.),
    • Number of bedrooms and baths
    • Lot size
    • Overall condition

Most importantly, the appraised value of a home is primarily based on the sale prices of similar homes in the immediate neighborhood.

Most appraisers won't adjust for vinyl flooring versus hardwood or high-end plank siding versus standard. These "materials used" variances are noted in the appraisal, but the appraiser doesn't use them to adjust the value of the home.

Home Improvements that Will Increase Appraisal Values

Major and minor additions, however, will increase the appraised value. For example, adding a new bedroom or bathroom will increase the appraised value as will finishing your basement or attic. New decks, swimming pools and fencing can also increase the appraised value.

Also, note that unique properties can be difficult to appraise and sell as both appraisers and buyers have fewer properties with which to compare.

A well-maintained home, on the other hand, does appeal to home buyers.

While an appraiser may not reward you for your brand new custom-designed, multi-zone furnace, water heater, and wired-in generator system (yeah baby!), a home buyer will.

Anything you do around your house, from installing energy efficient windows and doors to improving the landscaping and replacing the cracked driveway, will make it more appealing to potential buyers. As a result, your sale price could increase, which, unlike an appraiser's opinion of value, means real money in your pocket.