Everything You Ever Wanted To Know About Appraisals but...
As you may or may not know, in order for Realtors to renew their licenses, we have to take continuing education courses each year to keep up with changes in state and local laws.
I took a class in appraisals about 2 years ago and it was a real eye opener. Now this wasn't a class to become an appraiser, (that takes many hours of classes and several years of apprenticeship prior to licensing) it was just a class to help me better understand appraisals. Here is some of what I learned.
- For those of you who have finished basements and/or bi-levels with bedrooms in the lower level: you should know that if there is any portion of the lower level below grade (that means under the level of the ground) by law an appraiser cannot count it in the living area square footage. That's somewhat contrary to what we as Realtors are allowed to include in listings. Our requirements say that even if a room has a portion below grade, if it has a closet and at least 5 square feet of window (large enough for rescue personnel in full gear to enter) then we can advertise that space as a bedroom. So, if you have a 4 bedroom home with one of those bedrooms partly below grade, we can sell it as a 4 bedroom home but when the lender sends out an appraiser, that same home is appraised at only having 3 bedrooms. This same criteria holds for family rooms, offices, etc. on the lower level.
- Cost does not equal value! What does that mean? Well, simply stated it means that just because you paid $6,000 for granite countertops when it comes to the appraisal those countertops won't add $6,000 to the appraised value of your home.
- The term "average" is relative. That means that if you live in a subdivision of large, high-end custom homes, the term "average" will be used to describe your marble floors on the appraisal. Marble floors are average in other homes of the same quality. If your marble floors were installed in your $150,000 townhouse after settlement, chances are those floors would be above average for that neighborhood.
- When adjusting the value of a home, the cost of adding the addition or upgrade is not the "value" of the upgrade. Currently, the following values are applied to each addition/upgrade:
- 2 car garage = $5,000
- 1 car garage = $2,500
- Carport = $1500
- Covered porch/covered deck = $2500
- Uncovered porch/deck = $1,000
- Woodburning fireplace = $2500
- Gas fireplace = $1500
- Finished basement = $5,000
- Extra full bath = $2,000 - $3,000
- Central air conditioning = $5,000
Of course, we all know that it will cost at least three times that amount to have a 2 car garage built. Our uncovered deck was $2800 - and that was 3 years ago! We priced out a gas fireplace last fall at $3,000.
I'm sure at one time or another most of you have heard the term "over improved" but not everyone understands its meaning. If your home is over-improved you won't be able to recoup the money spent for those improvements. Recently, we had a transaction involving a beautifully remodeled home in north Wilmington, DE. The owners enjoyed the location of their home and loved to cook and entertain. During their ownership of the home they took out walls so that one of the original bedrooms became a lovely bistro-type eating area in the kitchen. The working area of the kitchen had a $40,000 facelift including custom cherry cabinets, marble countertops, etc. Then the owners replaced the lost bedroom by building on a 15'x15' master bedroom and adjoining master bath. This new bedroom was connected to the original house structure by a wide hallway with custom-built storage cabinets. All told, this was probably an $90,000 remodeling job in itself and (in a perfect world) the home should have been worth $370,000. But who would pay $370,000 for a house in a development where the highest price any home had ever sold for was $279,000?
What does all of this mean to you as a home-owner? Well, essentially it means you should consider carefully before you add on or install upgrades in your existing home. Are the additions and/or upgrades going to significantly add to your enjoyment of your home? If the answer is "yes" then go ahead and make the improvements. If you're only improving the property to add to its resale value, think again. A house with granite countertops, marble floors, a Jacuzzi tub and a 4 car garage may have more appeal to Buyers but the house will never appraise $50,000 over the same house with quality formica, ceramic tile, well-appointed master bath and a 2 car garage.