How Home Renovations Impact Appraisals

How Home Renovations Impact Appraisals

There are pros and cons when it comes to home renovations. The biggest pro is that the
renovations improve your home and can make it more enjoyable for you. The major con is
that sometimes renovations can cost more than they are worth. When planning for home
renovations, it pays to plan carefully and make smart choices with return on investment in
mind.

Renovations that Impact Appraisal Value

Changing Your Color SchemeMan painting a wall white

Nearly two-thirds of real estate agents recommend repainting the inside of a home before putting it on the market, according to a 2017 survey by Houzz. Additionally, other studies show a fresh coat in the right shade can add thousands to your home’s sale price. Repainting can be one of the cheapest renovation projects, but it needs to be something neutral. Repainting with bright or other non-neutral colors can back-fire.

Incorporate Landscaping

A little lawn care can go a long way. Curb appeal is an important factor to a home appraisal.
Consider simple upkeep for your yard such as:

  • Mowing
  • Weed-eating
  • Gardening
  • Pressure washing the sidewalks

Don’t implement any over-the-top landscaping projects, such as elaborate designs,
fountains, or stone walkways. These projects won’t hold their value.

Implement Energy-Saving Methods

There are various methods you can implement to ensure your home is as energy efficient as
possible. The most important area to focus on is ensuring your home is fully insulated.
Taking this step can cut your heating bills by nearly 10 percent, according to the
Environmental Protection Agency.
Additionally, replacing old windows with energy-efficient ones can save you between $25
and $450 a year in heating and cooling costs. Other minor things include replacing simple
weather-striping at doors

Renovations That Have Little to No Impact on Home Appraisals

Many home renovations do not make financial sense. These are typically done from
emotions and not practicality and functionality. The following are renovations that
contribute the least value to a home:

  • Installing a pool
  • Converting a bedroom into a leisure space such as a playroom or wine cellar
  • Changing hardwood flooring to carpet
  • Closet renovation (adding shelves)
  • Adding bedrooms or bathrooms
  • High-end fixtures and finishes
  • Adding additional electrical outlets

Renovations can greatly impact the appraisal value of the property, either negatively or
positively. Consider what would contribute the most and the least value. It is important to
consider several other factors before implementing renovations.Paint swatches and counter top tabs

 

Factors to Consider with Renovations

Location

A home’s location – what city it is in and even what part of that city – is key to this popular question. For example, adding a central air conditioner to a home in the South may add significant value, while putting one in a home near the Pacific Northwest may not have much impact.

Room

Which room are you considering making renovations to? According to one national survey,
kitchen remodels returned an average of 88 percent of the investment. In other words, a
$10,000 kitchen remodeling project would add approximately $8,800 to the value of the
home. Bathrooms were second, returning 85 percent.

Age

The actual age of a home is not what is most important when appraising a home. An
appraiser is more concerned with the effective age. According to The Appraiser Coach, if you
can take 10-15 years off the appearance of your home, you are doing yourself a huge favor.
The value of a home is determined by the buyer’s perspective.


 

Definitive Valuations is North Alabama’s premiere appraisal firm. Our mission is to provide
superior valuation and consulting services in Huntsville, Alabama, and surrounding areas.
Our staff strives to understand your needs and to provide the best solution for your
situation – whether for financial planning, relocation, tax dispute, legal matters, pre-listing,
or any other purposes. Discover more here.

Difference Between Appraisals and Inspections

Differences Between a Home Appraisal and a Home Inspection

Home appraisals and home inspections are two very different things, but both are necessary in the home buying or selling process. Each of them are evaluating the home from two different perspectives. Additionally, the two are very different processes requiring separate skill sets and expertise.

What is an Appraisal?

The home appraisal is a form of evaluation in which the appraiser gives an opinion of the value of the property being considered. As an appraiser formulates an opinion of the value of your home, he or she will take the following into consideration during the process:

  • Location
  • Size and type of Lot
  • Overall Quality of Construction
  • Overall Condition
  • Prices of Comparable Properties

An appraiser isn’t interested in whether a house is clean, but he or she will notice signs of neglect, such as cracked walls or chipped paint. There are three types of approaches which guide the appraiser to build the valuation of the property.

Cost Approach

The cost approach is one approach that appraisers may consider while determining value, although it is important to note that cost does not necessarily equal value in the world of appraisal. Cost may be greater than, equal to, or less than the contributing value of that item/feature to the whole value of the property. The cost approach involves discerning what the improvements would cost minus physical depreciation, plus the land value.

Sales Comparison Approach

In the sales comparison approach, the appraiser carries out a detailed analysis of comparable sales within the subject’s defined market area. Preferably these properties will be located within close proximity to the property being appraised and will be reflective of the most recent sales. Although for specialty properties, an appraiser may be required to search further in distance and time to find something truly “comparable” to the property being appraised. This approach is the most accurate and clearest indicator of a likely sales price for a home since realtors in the market also look at other home sales in the market when assisting potential buyers and sellers in real estate transactions.

Income ApproachWoman holding clipboard making notes

Lastly, the income approach is another option appraisers can rely on and is most valuable when appraising income producing properties (rental properties). This method involves estimating what an investor would pay based on the money produced by the property.

What is a Home Inspection?

A home inspection is an objective visual examination of the physical structure of a house, from its roof to the foundation. The home inspection involves comprehensive analysis of the structure, amenities, and other items to include:

  • HVAC Systems
  • Interior Electrical Systems
  • Sanitation / Plumbing
  • Roofing
  • Chimneys
  • Visible Insulation
  • Walls, Ceilings, Floors, Windows, and Doors

A home inspector will educate the buyer or seller on the condition of the home and its major components. The inspector also takes note of the cleanliness and physical condition of the house, looking for things such as cracks in the walls, broken windows, chipped paint, damaged floors, torn carpet, or damaged appliances.

Man unlocking door to house

The Differences

A home inspection will always involve a professional visiting a property and conducting a physical exam. Often an appraisal will often involve a visit to the property by a professional appraiser. However, it is important to note that an appraiser may also be able to give an opinion of value without visiting the property at all as long as enough information is available to make some assumptions and complete the assignment. Additionally, both home inspections and appraisals will often occur prior to the closing of the sale of a home and will result in a report regarding the property’s state, functionality, and integrity. Both are also meant to be unbiased looks at the piece of real estate. However, the two also have big differences, as they both complete different tasks.

Ultimate Goal

A real estate appraiser’s key job is to provide their opinion of the value of the home to the lender, buyer, and/or seller. On the other hand, a home inspector guides the buyer about the physical components and the detailed condition of the home.

Duration

A home inspectors inspection can last two to three hours, while an average appraisal inspection involves a simple walk-through. The appraiser’s job is not finished and did not start at the property inspection, but involves detailed research, analysis, and reporting of the market activity and sales in the area and how they compare to the property being appraised.

Details

An inspection assesses the physical components of a home. An appraisal considers a multitude of features of the home including: the location of the home, the school district the home is zoned for, the size of the home, its overall quality and its overall condition.

Both appraisals and inspections are important in protecting a real estate investment. An inspection can safeguard you from making any costly mistakes, such as purchasing a home with a faulty foundation. An appraisal gives you an unbiased, accurate value of the property. Be sure to have both processes taken care of before making any next steps in buying or selling property.


Definitive Valuations is North Alabama’s premiere appraisal firm. Our mission is to provide superior valuation and consulting services in Huntsville, Alabama, and surrounding areas. Our staff strives to understand your needs and to provide the best solution for your situation – whether for financial planning, relocation, tax dispute, legal matters, pre-listing, or any other purposes. Discover more here.