How can a realestate appraisal not increase when money was put into the home?
December 27th, 2009 | by admin |My house appriased at 110,000 2 years ago, since then we h ave completly gutted and renovated the following, master bedroom, bathroom, living room, and dining room. We have installed a secondary heating system. We have also added a 24 x 32 garage and a pool. along with replacing most of the electrical and plumbing. The best guess of what we have sunk in is between 40,000 and 50,000 just for materials. Our new appraial done last week only came in at 125,000. Can anyone explain to be how it is possible that I am not even able to recoup have of what we have put into the house. It doesnt seem to make any sense that putting that much money into improvements only yields a 15,000 increase in property value. That wont even touch what we have in the garagee alone. Should I order a second appraisal (the comps were on the other side of town) or have house values fallen that bad? The neighbors smaller house and smaller garage but similiar size lot is listed right now at 130,000.
So are you guys saying that a completly renovated 3br 2 bath house would have the same appraisal value as a non renovated 3br 2 bath?
Oh and I mentioned the neighbors house because they mentioned it to me telling me its hurting my value.
So adding a garage does not increase property value?
I am coming in late, after your additional comments.
Garages do not add $ value, although they do make selling easier.
The pool is a liability and decreases the value, as you lost land use and they are costly to operate. The pool is the reason your house is lower then your neighbors house.
You renovated the wrong things. The bathroom is good, but the kitchen would have been better then the bedrooms and the dining room. Unless you completely changed the flooring there isn’t that much to do to bedrooms.
Also, house prices were inflated 2 years ago, they have dropped to a more realistic amount in many areas of the country. I am in CA and they are 25% less then 2 years ago.
8 Responses to “How can a realestate appraisal not increase when money was put into the home?”
By mstrobert on Dec 27, 2009 | Reply
The appraised value of your home has nothing to do with what you paid for it or how much you put into it.
The main basis for property value is dollars per sq ft. of living space. Garages, and pools are simply intangibles.
Your neighbors home listed for $130 may appraise for less than yours.
Just hope your neighbor gets the $130, it will help increase the price of your place.
You should use the low appraisal for your property tax protest!
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By Squat1 on Dec 27, 2009 | Reply
An appraisal is the value of your house today at fair mrket value.
There are some improvements that you can make that you want, but will not increase the actual value of your house.
Get a second appraisal and see.
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By littlelanasue on Dec 27, 2009 | Reply
There are some thing you can do to your home that can increase the value of your home, and some things don’t. Like the plumbing and heating system. When an appraiser compares your home to other homes, he can’t actually go into the other homes he is comparing your home to. So, therefore, he can’t see the plumbing, heating system, whether it has an updated kitchen, etc……All he can do is compare square footage, # of bathrooms, #of bedrooms etc….And with the # of increasing forclosures, property values are way down.
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By Adam A on Dec 27, 2009 | Reply
I’d always recommend getting a second opinion…but that still wont change the fact that you probably over improved. If you put a solid gold steering wheel in your 1978 Pinto, it wouldn’t make the pinto "worth" anymore…ok..bad analogy, but the point is that appraised value is determined solely by recent comparable sales. Oh, and market value and appraised value are not the same either. Market value is determined by how much a buyer is willing to pay….and that figure often time is less than actual appraised value….confused yet?
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16 years as a broker in this crazy REO driven Michigan Market.
By rdd1952 on Dec 27, 2009 | Reply
An appraiser uses comparable properties in the neighborhood to determine the value of your home. Additions and upgrades rarely raise the value as much as the amount spent.
If the value of the home was $110,000 2 years ago, the other properties in the area would not have appreciated more than 5 to 10 percent in 2 years. Even 10% appreciation would only raise the value to $121,000. And it’s very possible that you over improved for the area. Improving the home to where it is considerable bigger or better than the surrounding homes doesn’t get you the increased value you are looking for.
And the amount the neighbor’s home is listed for has no bearing on the value of your home (or anyone else’s for that matter). The only thing that matters is what other homes have sold for in the last 6 to 12 months. And unless there are at least 3 or 4 comparable homes (similar size, bedrooms, bathrooms, exterior contruction material, etc.) in the area that have sold for considerably more than $125,000, then your home won’t appraise for any higher.
EDIT: In answer to your added comment about the renovations, an appraisal is done with the assumption that all houses are in equal condition unless they know better. When they pull comps to do the appraisal, they have no idea what condition the home was in when it sold 6 months or a year ago. They have to assume it was in the same condition as yours is now. They do make adjustments for things such as exterior construction, square footage, location (busy street vs. cul-de-sac), and age of the home. Where possible though, they will try to find homes that are within 5 years in age, roughly the same square footage and as close to the same as possible since the more adjustments needed, the less accurate the appraisal.
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By theshadow01 on Dec 27, 2009 | Reply
In addition to what the others have said, in many parts of the US property values have gone down. Drastically so in some areas.
What your neighbor’s house is listed at most likely will be above what it actually sells for.
Something many people fail to understand before they do it is that renovations do not increase the value. Square footage increases the value. Unless your garage is attached, accessible from the inside of the house, has finished walls, and is climate controlled it does not count as part of the footage of your home.
What you have done will increase the marketability of your home.
Many sellers are facing this right now.
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By Landlord on Dec 27, 2009 | Reply
I am coming in late, after your additional comments.
Garages do not add $ value, although they do make selling easier.
The pool is a liability and decreases the value, as you lost land use and they are costly to operate. The pool is the reason your house is lower then your neighbors house.
You renovated the wrong things. The bathroom is good, but the kitchen would have been better then the bedrooms and the dining room. Unless you completely changed the flooring there isn’t that much to do to bedrooms.
Also, house prices were inflated 2 years ago, they have dropped to a more realistic amount in many areas of the country. I am in CA and they are 25% less then 2 years ago.
References :
By wareagle30 on Dec 27, 2009 | Reply
values have fallen and foreclosures are sky high so banks are ultra conservative right now.
the first appraisal could of been too high also if it needed to be a certain # for the loan to work.
the appraisal does not relect market value, its appraisal value only.
FYI if you do this again get a BPO (brokers price opinion) before hand with considerations for the renovations. then you will know how each project will impact the value in the end.
References :
collection Atty. & real estate investor