When you're making updates or remodeling your property, it is important to remember how it will affect the value. Are you improving your property so that you will enjoy it more or doing it just for the sake of resale? If it's with resale in mind, you need to know the actual payback.
So how do appraisers determine the value of your property? Appraisers must follow very strict guidelines and laws have changed in 2010. Here are the most important new guidelines:
- Appraisers must use area comps (comparable sales nearby) and can only use a 10% up or down variable from these comps.
- An expensive home in a moderate neighborhood can only increase the value up to 25%. In a $500,000 neighborhood, a $1 million home can only be valued at $625,000, regardless of its amenities.
- Major transportation barriers (freeways, DART lines, 6-lane streets like Preston Road or Forest Lane) divide areas considered comparable and appraisers may not select comps that cross such barriers.
- Luxury amenities (like a pool, custom fixtures, ...) can never add more than 10% to the value. For example, a $500,000 home with a $85,000 pool can only increase the value $50,000. "Green" features do not add to the appraisal value.
- Foreclosures and distressed sales count as comps.
- Appraisers now have to provide the lender with a market condition survey. A market with an excess of a 6 month supply of homes is considered an 'over supply' buyers market.