As an appraiser the most often asked question to come my way is “What upgrades should I add to my home that would have the greatest influence on the property value?” At first glance it appears to be a simple question, however, the number of factors that are taken into consideration are numerous and not always consistent.
Myths About Home Upgrades
There are several misconceptions that arise in all of these conversations. One of them is: if a homeowner spends $10,000 to remodel the kitchen is the home now worth an additional $10,000. The unfortunate reality of this is no. As a general rule of thumb, assuming that the craftsmanship and quality are considered adequate, the homeowner will return approximately half of the value put into the upgraded features. However, this can deviate considerably with the increase in value of the home in question. Typically, in higher bracket neighborhoods more upgrades are considered standard and are expected to be in the home. Therefore, the homeowner gets less return on their upgrade investment than compared to a lower valued home’s upgrade investment. This is an economic term known as “The Law of Diminishing returns.”
Do all upgrades add value to a home? Again the answer is no. This theory reflects an appraisal term that is called “Value In Use.” It means that a value to one homeowner is not always value to another. A good example of this is as follows: Let’s say that a homeowner lives in a 3 bedroom 2 bathroom house, and the homeowner does not need the third bedroom. So they take down a wall to expand the master bedroom, on the open market few people are looking to purchase a two-bedroom home, in this case the upgrade would be viewed as detrimental to the value.
The indicator of value for any home is the comparables sales. It is the appraiser’s job to search the neighborhood and determine which recent home sales are the most similar to the subject. For this reason a home in any community can never be worth significantly more than other homes in the community. The best advise that can be offered to any homeowner that is looking to maximize value is to be realistic; do not over improve your property.
Home Upgrade Examples
The median home price for the Phoenix area is approximately $235,000. We can use this as an example; a homeowner wants to install granite counter tops in the kitchen and baths. A home of this value will only return a reasonable percentage if, low-end inexpensive granite is utilized. A typical buyer in this market may spend $5,000 more to purchase this home with the additional feature; however, they will not spend $20,000 more. Finally the biggest determining factor is, in the local real estate market, the aforementioned concepts hold true in a steady market. Since the market is not always stable it can have a significant influence on your home’s value regardless of condition and quality.
In summary, an appraiser has to abide by government-regulated guidelines as well as business ethics and morals, but the value conclusion is only an opinion and can differ. The best action to take is neutral colors, avoid anything that is considered extravagant, but make your home the way you like it.You cannot concern yourself with appealing to everyone, and it is still, after all, your home.
For more information about home appraisals in the Phoenix, Scottsdale, Mesa, Chandler, Tempe, Gilbert, Arizona marketplace please visit: AZValuation.com
Written by John Peterson. Appraiser. John owns his own real estate appraisal company located in Scottsdale, Arizona,and is an FHA licensed appraiser. John can be emailed at: firstname.lastname@example.org.
For more information, visit Home Improvement Projects – What You Should Know