Learn how to increase home value for appraisal with these tips and renovation ideas.
Thinking about selling your house in the future? If so, you’re probably thinking about how to increase home value for appraisal time so that you make a good return on investment (ROI). So what renovations yield the best ROI? And what does the appraiser look at when they’re evaluating your home? We’ve got the answers to these questions and more.
The perfect balance
The biggest problem homeowners run into is that while they’re making renovations on their home in order to increase the value, they end up spending their money on the wrong things. Often, they find that the appraiser didn’t consider their flashy new faucet or their trendy paint color as equity increasers.
To avoid this pitfall, it’s important to know how to invest in your property to make it more appealing to potential buyers and to make sure that the appraiser considers those upgrades valuable. Buyers mainly care about the feel, function, and finishes of the home, while the appraiser looks at the nuts and bolts. A successful renovation requires careful planning and research to find the perfect balance that appeals to both parties.
5 of the Most Valuable Home Upgrades
How to increase home value for appraisal
Let’s look at the appraisal side of things. The appraiser cares mostly about the livable space, such as the square footage, bedrooms, bathrooms, and the like. The lender cares about the home appraising for the right price. Why? Because why would a lender lend, let’s say $250,000, to a buyer if the home appraises for only $200,000? That’s a backwards risk that most lenders won’t take.
In a situation like this, your real estate agent would probably tell you financing “fell through.” That means that the house you’d been eyeing and put an offer in on was listed well over the appraised value and, most likely, the lender has decided it’s a bad deal.
It comes down to basic math. The money you invest in your property should reflect the list price for the home. If the appraiser comes to you and says, Sorry, the house is only worth this much, you’ll have to reduce the list price of the home in order to meet their requirements. The good thing is, even if you over invest, this can sometimes cause a bidding war in the right market. If a buyer is willing to purchase the home for a price higher than it appraises for, they normally have to pay out of pocket on the difference between the purchase price and what the lender will lend them.
It comes down to basic math. The money you invest in your property should reflect the list price for the home.
Getting strategic about it
Buyers are often irrationally attracted to things that are pleasing to the eye or on trend. Things like stainless steel appliances, butcher block countertops, and gold hardware come to mind. But anything you do to make the house look nicer will probably help sell it. Unfortunately, however, fashionable upgrades that are more trendy than adding to the bones of the home will generally be ignored in the appraiser’s assessment. This is where you want to find a balance between attracting buyers and pleasing the appraiser.
A good way to raise the value of your home is to pay attention to what your neighbors’ houses are selling for. Ideally, when you see a few sell for a high price, that’s the time to get your home appraised. But that’s pretty hard to plan for, so just keep this in mind: The appraiser will capture the renovations you’ve made, but they’ll only factor them into their final assessment to the degree that they compete with the comps in your neighborhood. In effect, this creates a sort of “soft limit” on how much money you can invest before you stop seeing ROI on it since the comps are factored in when your home is appraised.
A successful renovation requires careful planning and research to find the perfect balance that appeals to both buyers and the appraiser.
Practical renovations that add value
So how can you win? How do you find that perfect balance we’re talking about? Luckily, it’s easy to look up ROI averages for renovations you’re considering. Remember, the appraiser is looking at the core of your house: roof, foundation, electrical, plumbing, etc. Not at the color of your carpet or the brand of your cabinetry. The appraiser also considers many other factors like neighborhood, schools, crime rates, comparable home sales in the area, and the age of the home—many of which are outside of your control. So focus on what you can do to add value to your home.
Top 10 Home Remodeling Mistakes to Avoid
Here’s a rule of thumb: try to increase your home’s square footage of livable space. This is a great way to add to your home’s appeal and your appraisal value by competing with the comps. The appraiser will take the square footage of your home, bedrooms, bathrooms, living rooms, etc., and calculate your price per square foot. And, if you want to add livable square footage without taking on a major renovation like building an addition, try converting the attic into a bedroom or finishing the basement. Here are some additional ways to build equity and improve your home value for the appraiser’s consideration:
- Lightly remodel kitchen and bathrooms
- Landscaping and curb appeal
- New windows
- Replacing outdated carpet or upgrading to hardwood
- New paint inside and outside the house
- Replacing the front door
- Adding a deck (increases exterior square footage)
- Replace garage doors
- New HVAC
- Recess lighting in dark rooms
- Remove popcorn ceilings
- Tear down non-load-bearing walls (has that open concept appeal and doesn’t compromise your livable square footage)
- New roof
For best results: renovate smart
The best advice we could give is to make renovations that are smart and calculated. If your goal is to sell your home in the future, don’t make changes that won’t hold value to an appraiser. Good thing there is all kinds of information out there to help you make renovations that will yield the best ROI. Do your research before you demo—you’ll be happy you did it the right way!
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