It’s rare to get a dollar back in value for every dollar spent remodeling and updating your home. Some expenditures return more than others. Published reports indicate an average return on bathroom remodels at 68% and kitchen remodeling typically only returns 46% of the cost. Of course, these are National averages and local research is recommended. Remember, real estate value is about what buyers are willing to pay for something – not the cost. An owner may have spent $50,000 on updating their weekend cabin, but what are buyers paying for similar remodeled homes in the neighborhood? That’s what appraisers will focus on when coming up with a value. It always comes back to the comps.
Example of possible loss of value: Walk-in bathtubs are promoted for ease of access for older and/or disabled people and the total purchase and installation costs may range from $5000 to $15,000 or more. When it’s time to sell, many buyers may view it as a negative, and discount the purchase price, because it is something they will replace. Perhaps a curbless or roll-in shower would be a better choice.
When upgrading a home for value, make sure it’s something that will meet market expectations and not just for your own satisfaction. Of course, some remodeling is for the homeowner’s needs and not expected to give a dollar for dollar return. A pool will certainly be worth less than the cost to build, but a family will likely get years of enjoyment from it.
People should realize that they rarely get 100% of the cost of remodeling and upgrades back when it comes time to sell. There are exceptions, house flippers are professionals, have a team of craftsmen to do the work, have researched the market and know where their money is best spent to will yield the highest return.
My suggestion to most people who are planning to sell soon and are considering significant remodeling, is to perform inexpensive cosmetic and deferred maintenance work, and leave the expensive updating to the next owner.
is one of the many variables considered in the appraisal of a home, along with
condition, effective age, appeal, design, etc.
Not only the quality of the home being appraised, but also the quality
or lack of in the sales comps used in the appraisal.
When a lack
of quality or a need for improvements is observed, as an appraiser, I will make
a list of deficient issues and what it will cost to repair them. This cost to cure is then utilized as an
adjustment in arriving at an “as is” current market value for the home being
appraised. In my experience buyers do
this when making a purchase. A home might technically be remodeled, but if
the work is sub-standard or obviously “do it yourself”, it may not compete with
professionally remodeled homes. When
something looks off in a house, it’s a red flag to look at other details more
sometimes influenced by flashy ornamentation.
While we may not agree with it, if buyers are paying more for these
shiny features rather than something older and so-called better, it is our job
as appraisers to recognize the market reaction and take that into consideration
in our value.
and Historic homes are also a consideration.
Buyers may pay 15% more for a log style design compared to more
conventional construction. Historic
homes like those built by Gus Maltby, in Big Bear, during the 30s and 40s have
a mountain charm that many buyers pay a premium for and appreciate.
One last point
worth mentioning has to do with quality issues that are below the surface, like
2 x 6 framing, extra insulation, plumbing and electrical updates, extended life
roofing, energy, fire and seismic upgrades beyond current building codes,
etc. In order to determine if buyers are
paying more for these upgrades, it is necessary to extensively research the
market data rather than make our own assumptions about what the market should
and shouldn’t do.
While it is
difficult to put a dollar figure on differences in quality, there typically is
a range of value of the adjusted market data.
The recognition of a high quality home being appraised is a good
justification for favoring the higher end of the value range.
In the final analysis, whether it’s
logical or not, it’s the market that gives value and the appraiser is there to
reflect the market reaction and take that into consideration in the appraisal.
Zillow is one of the most
popular websites for real estate information. You can enter an address
and get an estimate of the home's value called a "Zestimate".
These computer generated value opinions are often taken as gospel and are
regularly quoted to real estate agents by buyers to challenge high asking
prices and sellers to question low listing prices.
The problem is, the Zestimates
are not always accurate, and in resort areas like Big Bear, where every street
and house is different, the margin of error can be large. Zillow uses a
computer program to determine the value of a home based on information from
public records, which are notorious for being inaccurate, and information
entered by users, which may be biased.
It doesn't know the idiosyncrasies of a real estate market , not to mention recent remodeling and updates, interior
condition, level of quality and charm, view or proximity to recreational
attractions and shopping. It doesn't know about road noise and traffic,
or structural problems and deferred maintenance. As stated in the fine
print on the Zillow website "it is a starting point in determining a
home's value and is not an official appraisal". The Zillow
help center goes on to state: "We encourage buyers, sellers, and
homeowners to supplement Zillow's information by doing other research such
as: getting a comparative market analysis (CMA) from a real estate agent,
and getting an appraisal from a professional appraiser..."
I reviewed the recent sale prices of
3 randomly selected 3 bedroom, 2 bath homes,
and compared them to the Zestimate and range of value offered by Zillow:
Sale #1 from Big Bear City sold for $360,000 while the Zestimate was $337,267 and the Zillow range of value $310,354 to $354,000
Sale #2 from Big Bear Lake sold for $193,000 with a Zestimate of $239,709 and the range of value $194,000 to $283,000
Sale #3 from Big Bear Lake sold for 693,000 with a Zestimate of $786,638 and value range of $747,000 to $826,000.
In these examples, the sale
price fell outside of the Zillow range with a large difference in the Zestimate
and final sale price.
There are studies that
demonstrate that Zillow can be reasonably accurate on the value of a home in
conforming tract developments.
However, in a resort area
like Big Bear, where you have old and new, large and small homes mixed
together, the accuracy can go way
down. Pricing a home properly is an art and science. It is not
accomplished by trusting a computer generated value whether it is Zillow or
some other online valuation tool.
If you want an
accurate value of your home, always consult with a local real estate
professional or competent appraiser.
Pre-Listing Appraisals A
Good Idea in Big Bear
If you’re working with a realtor to list your property, most
likely they will provide you with a CMA (comparative market analysis) that
identifies recent comparable closed sales, properties in escrow, current listings
and expired listings. This is an
important step in getting the most for your property at sale and minimizing the
home’s time on the market. A pre-listing
appraisal can provide an “objective” third party opinion of value giving you
confidence that you are listing your home at an appropriate price.
A pre-listing report will provide a full sketch showing the
accurate square footage and may reveal inconsistencies with public records that
can be explained or corrected before the sale.
In addition to providing you with a realistic list price, a pre-listing
appraisal can be a valuable tool in negotiating with a potential buyer, and
decrease the chances of unknown problems that cause sales to be delayed or fall
Some people are surprised to find out their home is worth
more than they thought, others have an unrealistic opinion of the value. A well priced listing attracts buyers and
helps to sell in a timely manner.
When arriving at a list price, it’s important to compare
your home to what has recently sold and is currently listed in your
neighborhood, because potential buyers will be making these comparisons. Remember, why would someone buy your home if
they could buy something similar for a lower price?
Get a Pre-Listing Appraisal in Big
Bear if you have:
the largest or smallest home in the
neighborhood, because if you take the average price per sq ft and multiply your
living area, you will most likely over price a large home and under price a
comparable sales nearby, because an appraiser with local knowledge will know
where to go, even if it is 1 or 2 miles away, for properties similar to yours;
made extensive renovations, because most sellers will want to recoup the
$50,000 in home improvements that they have made, and a professional appraisal
will indicate what a buyer will pay for those improvements;
your home on the market for a long time with no showings or offers, because
there are many factors that go into a home being properly priced, a pre-listing
appraisal will take into consideration, location, condition, and appeal as well
as current market conditions.
When You Don’t Need a Pre-Listing
If your home is located in a neighborhood with homes of
similar age, style and size, with lots of recent sales and current listings,
then it is easier to estimate the value without an appraisal.
Don’t let the fact that you are using a realtor prevent you
from getting a pre-listing appraisal if the situation calls for it. The cost of the report will be well worth the
time saved in selling your home at the right price. When making financial decisions as important
as selling a home, it’s always a good idea to get as much information as
possible, and from as many sources as possible. (except Zillow, see my next
post coming soon).