Adding Value To Your Property - Why Appraisals Matter

[Ken M.]

A lot of people misunderstand what adds value to an appraisal. The most important item is location. You aren't going to change that. An appraiser looks for 3 recent sales in the immediate area within the same vintage of build, sq feet, style, number of bedrooms, number of bathrooms and so on or as close to it as he can get.

The "subject property" might get some value taken away from it if it has a lot of deferred maintenance. But, the appraiser is looking for comps that have already been updated. There may be a few adjustments for superior materials, but not as much as you may think.

Your key is to find 3 or 4 recent sales (Comps) on Redfin for instance, look at the finishes (counter tops, cabinets, etc) and try to duplicate what others successfully sold in the neighborhood.

Finished basements can add value in some neighborhoods but they have to meet fire code restrictions regarding doors, windows and ceiling height. Turning a large room into a bedroom and closet can add value depending on circumstances. Adding a bathroom that has been "permitted" usually adds value. The thing to keep in mind, if you expect to cover the costs of doing the upgrades, that typically is "chasing rainbows" unless you bought below value to begin with.

Moral of story, if you are planning on living in a property for a long time, renovate to your taste, if you are planning on selling in the next 5 years, be judicious in upgrades.

Selling costs money, real estate agents, escrow, title, and concessions and so on. Figure 8% of the selling price. More if you are in an area that has a transfer tax. Calculate your sales cost before you upgrade.

Never overbuild for the neighborhood. Here's why: Say you make the bestest mostest wonderful place and put it on the MLS above what everyone else has listed at. You get an offer. Now the seller has to convince his lender that it's a safe bet to lend money on to buy the house. The lender hires an appraiser ALWAYS. The appraiser is ONLY allowed to use previous sales in the appraisal. He can't make up future value predictions.

The appraisal comes in at what other properties have recently sold for and that is the amount the lender will lend against. The buyer loves the house but he can't "perform". The buyer can't borrower enough to complete the purchase and it's a big waste of time for the seller, the buyer, the lender. the listing agent, the selling agent, the title company, the escrow company and so on. The appraiser gets paid and gets to keep his license because he told the truth.