How do you factor Upgrades in appraisals?

[David DeCosta]

My wife and I recently upgraded our kitchen. The kitchen is 22 by 17 (no joke) 8O and until this year was completely under-utilized (limited cabinets, older appliances, a counter top that could only be described as....SAD )

We just added cabinets, a glass top slide-in range, under cabinet microwave oven, an island, Corian countertops and intergrated sink and seperate GE Monogram (think Sub-Zero Style) refrigerator and freezers.

Basically, the kitchen looks (sound of own horn tooting) terrific and we think it really adds to the value of the house. I know in various publications that the conventional wisdom is kitchen remods add approx 100%+ of the cost to the value of the home. Is this valuation immeidate? or is factored in over the course of years?

Question: We are in the process of a refi (See other post under: David DeCosta) how do we get the appraiser to factor the new kitchen in to the appraisal price of the house? Show before and after pics? Our house is markedly different from those of our neighbors; newer (4yrs vs. 27yrs), larger (2,150 sq. ft. GLA vs. ~1,400 sq.ft), larger lot (1/2 acre vs 1/4 acre). Any suggestions on how to get these features to refelect within our appraisal?

Thank you in advance.

David

 

[Pamela Crowley (Florida)]

David,

I've read both of your posts.

Your situation is a real nightmare for an appraiser. I'm sure your home is beautiful and exactly what you want it to be. It sounds like you built it on a lot where a smaller and less expensive house would have been more suited to that location. The newest, nearest, most similar qualified and verifiable as arms-length transactions sales should be used to form an opinion of the market value of your home. My guess is that the Appraiser will use at least 2 sales of homes in your subdivision and possibly 1 or 2 from another nearby area that will be more similar to the age, size and additional amenities that your home has, BUT will likely need to extract a location adjustment for the sales outside of your neighborhood as the 'typical' purchaser in that price range will most likely choose to be surrounded by similar homes of that similar price range.

It's not a good situation to be in when you own the largest and best house in the neighborhood. PLUS, the underwriters looking at that appraisal will tear it apart leaving the Appraiser in a nasty situation if they don't complete the appraisal properly. An Appraiser cannot simply arbitrarily choose comparable sales outside of your immediate neighborhood without explaining why they did that. The Underwriter WILL find the sales within your neighborhood. Any Appraiser that ignores sales within the neighborhood where the subject property is located is placing their career in jeopardy and just plain incompetent or stupid. From what your Appraiser has said so far makes me think that you already have an experienced and competent Appraier.

Here are some definitions that I hope will help you understand your situation and a couple links for more information regarding your situation.

Definitions:

OVERIMPROVEMENT: An improvement, excessive in cost or size, in relation to land value or value of surrounding improvements.

OVERIMPROVEMENT: An improvement which by reason of excess size or cost is not the highest and best use for the site on which it is placed.

OVER IMPROVEMENT: An improvement, excessive in cost or size in relation to land value or value of surrounding improvements.

Superadequacy: An excess in the capacity or quality of a structure or structural component.

SUPERADEQUACY: A form of obsolescence in which an improvement of real property is rendered useless due to its higher-than-necessary use or function and for which its cost will be greater than its perceived market value. For example, an owner of real property has a home with three bedrooms and three bathrooms valued at $100,000. To enhance the marketability, the owner installs three new bathrooms at the rear of the house at a cost of $12,000 creating a six-bathroom residence. The result is a superadequate home in which the owner will not recapture the cost of the renovations.

Incurable Functional Obsolescence: An element of accrued depreciation; a defect caused by a deficiency or superadequacy in the structure, materials, or design, which cannot be practically or economically corrected.

http://www.dearborn.com/download/flrepp24e/CHAP14.htm

http://realvaluations.com/ECONOMICS%20101.pdf

 

[Tim Hicks (Texas)]

No fair, Pamela, you answered this post as I was anwering the other. Please read my response and grade it accordingly. I agree with your post, but I was trying to be gentler.

 

[Mountain Man]

Woah, I bet that is a kitchen to be proud of. Looked at one similar, both hubbie and wife were chefs........ they didn't NEED a living room. :lol:

Can't say much more that what has been already posted.

 

[Ross (CO)]

Ones sees many a for-sale listing that presents the words "update, or upgrade, or remodel, or renovate" and upon inquiry the appraiser can realize that the agent feels that any of those words is o.k. and they are equally interchangeable in describing a property. There are true differences in the meaning of the words and can be specific if one wants to portray.....to what extent, why, or how...a home is different or better now than it was before. Old stuff, tired and worn-out, being replaced with new items performing the same function is updating. Replacing a water heater with 5-yr warranty with a new water heater with 12-yr warranty might be such an upgrade, or shag carpet and 1/2-inch pad with dense-pile plush stuff and 1-inch pad is an upgrade. Kitchen with one sink and one range/oven to having 2 sinks and 2 range/oven units is a remodel. Repair the damage of a fire or flood and one could be simply renovating.

David, you say your home is 4-years of age, but have said that the appliances were "older" and then seem less excited about the former counter tops...which were also only 4 years old. It does sound like you have upgraded and remodeled and I have no doubts your kitchen is attractive and much more functional to your use and desires now. If an appraiser finds that those 27-year old neighboring homes, perhaps selling recently, also have seen similar changes in their kitchens as those owners wanted the same features too, then those selling prices already incorporated their upgrades. As to the overall living area total in your home and others, as well as differences in lot sizes, that appraiser will surely account for those things respectively in the process. He or she may also find homes with nearly same age, very similar living area, and similar lot size and may not be as compelled to "work with" homes which are that much different from your own. Similarity between properties carries more direct importance than sorting out the differences. The least amount of value adjusting to do may just be the best way to conclude the current market value of your property......and you still get to enjoy your investment in the new kitchen for the summer parties and holiday dinners in the coming years.

 

[Lee SW IL]

David,

Remodeling a kitchen that is 30 years old would more likely increase the value of a property, more so than a remodel of a kitchen that is 4 years old. In a 30 year old property the materails are worn, out of style ect. Thus replacement/remodel is more wise.

Now unless you purchased your home at a discount due to a design flaw, a remodel may make more sence.