In addition to making your life better every day, home remodeling projects will ideally impact your home’s value for the better. However, your home’s value is at the mercy of the market and, in fact, some home improvements will positively impact your appraisal more than others.
Appraisers look at the basic structure and floor plan of your house, as well as the home’s condition. They then compare your house to similar houses in your area that have sold most recently. Comparable houses (also known as comps) in your surrounding area will impact the appraisal of your house. When making these comparisons, appraisers make adjustments in value based on the age, size and condition of the houses, which makes the process somewhat subjective.
Appraisers are more interested in size, function and condition than in style. For instance, a faucet that costs $1,000 is no more functional than one that costs $100. While the more expensive faucet should look better and last longer, no credit is given since there is no comparison showing these advantages.
If you want to focus on home improvements that will increase your home’s value, here are few worthwhile investments.
Adding bedrooms and bathrooms
In a home appraisal, a comp is determined by the bedroom and bathroom ratio and square footage. For example: a three-bedroom, two-bathroom house will be compared to other three-bedroom, two-bathroom houses. If the house is a five-bedroom, two-and-a-half bathroom house, it moves into a different bracket with different comps — instantly with higher home values. If you want to increase the appraised value of your home, adding bedrooms and bathrooms is a sure way to do it.
A finished basement
Finishing the basement is another sure way to add livable square footage and drastically change your home’s value. If you have a full basement, finishing the lower level could potentially double the square footage of your house. Plus, most basement remodels add bedrooms and maybe a bathroom.
The condition of your house figures strongly into the appraisal value. If you want home improvements that increase your home’s property values, invest in the condition of your home’s major systems and components. Therefore, a new roof, windows or new exterior siding will be positive factors in the equation of an appraisal. According to Mitra Kalita in a Wall Street Journal article titled, “Ten Tips for High Value Home Appraisals,” appraisers tend to think in terms of $500 increments when calculating values. Therefore, if there is an obvious repair more than $500 that has been neglected, this will count against the value of the house.
We have all seen homes that have been "flipped" to make a quick profit — some more successfully than others. Here, we are looking at appraised value more in terms of making sure your remodeling project includes elements that will increase it while you accomplish the goals that are specific to your family or project. Renovations can be too individualized or too elaborate to recoup your investment dollars. In addition, funding for renovation projects will often depend on the value an appraiser sets on your revamped home or on its future value based on the construction documents.
Also remember that the return on investment for home improvement projects (like a new addition) may take years to recoup in the market, so it is best to plan to stick around for a while and enjoy the new and improved version of your home. Renovations are not all about beauty and excitement; there is a practical financial side that must be addressed in order to make your project a complete success.
Ann Robinson and Annie V. Schwemmer are the principal architects and co-founders of a residential architectural firm focused on life-changing remodeling designs at RenovationDesignGroup.com. Send comments or questions to ask@RenovationDesignGroup.com
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