We work with many clients who want to refinance (or who have already refinanced) their homes. Frequently, clients cite all the updating they have done as evidence that their homes have increased in value; however, when the appraisal is determined, their home is not worth as much as they had hoped. Here is some information about home renovation to help you know when to say “when.”
Our appraisers cite that only certain work will garner the increase in value that the homeowners wish. The big three to improving the home while adding market value when it comes to appraisals are: bathrooms, kitchens and square footage. Painting, new carpet, landscaping, drapes and such are all considered “upkeep”, and while adding curb appeal to help sell your home, these improvements typically do not add value to your home in an appraisal scenario.
When you are updating or remodeling your home make sure that he cost of improvements will help the market value. Also, make sure that the improvements made will not make your home overvalued for your neighborhood. This is especially important if you are planning to sell your home. Often times, lending decisions are made based upon an appraisal. If the price of your home is over the appraised value, the lender will only provide your buyer with a loan that meets the appraised value. Unless you have a buyer willing to bring in the cash over and above the approved loan amount, your house may sit on the market for a while. In other words, be careful that the cost of improvements can be recouped when you sell your home.
Before remodeling, check the real estate listings for similar square footage homes in your neighborhood, review the amenities in those homes, and get the opinion of an experienced real estate agent about the improvements. For example, you may think that wood floors will add a ton of value to your home; however, if no one in your neighborhood has wood floors, the new floors may not have the return on investment you desire.
Of course there are considerations beyond home value, such as personal needs and desired aesthetics. Just know that if the driving motivation is to add value to your home from an appraisal perspective, prioritize your planning based on return at resale. For information about renovation loans, please visit my home renovation FAQ or feel free to contact me.