Appraisal Institute550 W. Van Buren St.Suite 1000Chicago, Illinois 60607T 312-335-4100F 312-335-4400www.appraisalinstitute.org
Remodeling &Rehabbing:Some Valuable Hintsfor Homeowners
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Whether you’re thinking about modernizing a room
in your home or rehabbing an entire house, you’ll
want to make sure the money you invest in the
project has a positive effect on your home’s value.
Before you start tearing up tile, ripping out old
plaster or buying that “handyman’s special” you’ve
had your eye on, you should consult a professional
real estate appraiser about the economics of your
proposed project. You may receive good advice on
questions such as:
• Will the improvement add to or detract from the
value of your home?
• Is the improvement feasible and marketable?
• Are neighborhood trends pointing to an upward
cycle?
• How to go about it
Keep the Next Buyer in Mind
When it comes to improving your home, don’t count
on a dollar-for-dollar return on every improvement.
For example, real estate appraisers have found that
remodeling a kitchen or bathroom or adding a room
may bring the greatest return on a homeowner’s
Remodeling & Rehabbing:Some ValuableHints forHomeowners
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investment. Some custom installations can actually
detract from value, which appraisers call over-
improvements. Focus on projects that will appeal to
the majority of homebuyers—more buyers will
appreciate an extra bedroom than a custom
greenhouse.
Here are some additional hints to help you plan the
home improvement projects.
• Make sure essential repairs are completed before
you start improving—a posh sauna won’t make up
for a leaky roof. In fact, simple and relatively
inexpensive repairs such as plastering and
painting could earn a better return on your
investment than some major improvement
projects.
• When deciding what to improve first, take a look
around and find out what other homebuyers
want. That way, you’ll select those improvements
for which the market is willing to pay. Beware of
over-improving.
• If you do it yourself, do it right. Keep your
improvements consistent with the quality of your
home and the character of the neighborhood. If
you decide that you can’t do the job yourself, be
sure to contact a reputable contractor.
• Pay a fair price for improvements, not an inflated
price.
• Consider energy-efficient improvements. While
they may not save you a great deal of money
now, as energy costs increase, so will your
savings.
The key to all major home improvement projects
is sound advice. Calling a professional real estate
appraiser, specifically a designated member of the
Appraisal Institute, can start you off on the right foot.
Based on their experience and proven ability in the
analysis and valuation of real property, they can
advise you if your remodeling investment may pay
off in the long run.
Is Rehab Feasible?
If you’ve been bitten by the rehab “bug,” you’d
better get help or the “disease” could be financially
terminal. You need to know if the property is worth
rehabbing, if the neighborhood is on an upward
swing, how much the rehab will cost and what its
“after-rehab” value will be. What you need are the
services of a real estate appraiser to conduct a
feasibility study. While many people may think of
real estate appraisers only in terms of estimating
property value for a mortgage loan, professional
appraisers perform a wide range of additional
services.
A feasibility study is much more than adding the
cost of renovation to the cost of the property for
an indication of final value. Renovation studies are
based on certain economic principles, including
those of contribution, increasing and decreasing
returns, conformity, and highest and best use. The
appraiser explores the alternatives, estimates the
cost and potential income/value benefits and, guided
by the results of a comparison of the data, develops
an estimate of value before and after rehabilitation.
If the property is in sufficiently sound condition, if
neighborhood trends point to an upward cycle and if
the prospective income or value improvement is
substantial, a comprehensive renovation program
may be feasible.
First, the appraiser gathers information about the
neighborhood, city and region and examines
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After an assessment of work to be done is
completed, cost estimates are prepared. Rehab
estimates may be based on actual recent costs for
the same or equivalent work performed in similar
structures. To the basic “cost new” amount is added
any additional cost for performing the work in an
existing structure. Because rehab conditions are not
conducive to the degree of efficiency that is attained
on new construction, the cost of rehab work, item
by item, is usually higher than for similar new
construction. The quality of material may be the
same as for new work, but more labor is involved
and the conditions are different.
A before-and-after feasibility analysis performed by
a professional appraiser can enable you to make a
reasonable decision about that potential rehab
property. You want to do it; be sure to do it “smart.”
Other needs for an appraisal and/or market analysis
related to a rehab property include:
• To judge insurance needs
• To estimate real estate taxes after rehabilitation
• To estimate value for a preservation easement
donation
Members of the Appraisal Institute: Your Key to Home Improvement Value
A key to major home improvement and rehab
projects is your call to a designated member of the
Appraisal Institute in your area for a professional
appraisal of your property. Members holding the
MAI, SRPA or SRA designations of the Appraisal
Institute form a network of highly qualified
professionals throughout the United States and
abroad. They are identified by their experience in
and knowledge of real estate valuation and by their
economic trends such as population growth or
decline, purchasing power, price levels and the
employment base in the area. Other factors to be
analyzed include:
• PHYSICAL: Street patterns, convenience to public
transportation, and available stores and service
establishments;
• ECONOMIC: Degree of home ownership, rent and
income levels; and
• GOVERNMENTAL: Zoning and building codes and
other regulations restricting design and use
A cost estimate to rehabilitate the property itself is
obviously part of a feasibility study. Architects and
contractors are experts who could also be called in
at this stage of the study. An assessment is needed
of the character, quality and condition of
construction details, including:
• Foundation
• Frame
• Exterior walls
• Floors
• Roof
• Interior construction
• Heating system*
• Plumbing*
• Gas supply and piping*
• Electric service*
• Miscellaneous items such as kitchen and
bathroom equipment*
• Land improvements such as water system,
sewage disposal system, walks, fences
(*These must all comply or be corrected to comply
with building codes)
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Copyright © 2004 Appraisal Institute. An Illinois Not
For Profit Corporation. All rights reserved.
This brochure is intended for informational purposes only.
Nothing contained herein constitutes legal, financial or
other professional advice. Transmission of these materials
is not intended to create, and receipt does not constitute, any
relationship of any kind between the Appraisal Institute and
the recipient. With respect to your own factual situation,
you should not act upon any information contained in these
materials without consulting your own legal, financial or
other professional advisor.
4/04
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commitment to adhere to a strictly enforced Code
of Professional Ethics and Standards of Professional
Appraisal Practice. With the help of an MAI, SRPA
or SRA, you’ll know what you’re getting into and
what to expect before you start!
How to Find a Member of the AppraisalInstitute
It’s easy to find a member of the Appraisal Institute.
Simply go to www.appraisalinstitute.org and look for
the “Find an Appraiser” option. You can search for
designated members through the United States as
well as abroad by name, city, county, state or
metropolitan statistical area (MSA). You can also
obtain the Appraisal Institute’s Directory of Members
on CD-ROM by calling 312-335-4100 or e-mailing
[email protected]. The Directory disk
is available at no charge.
Appraisal Institute
550 W. Van Buren St.
Suite 1000
Chicago, Illinois 60607
T 312-335-4100
F 312-335-4400
www.appraisalinstitute.org
Today and throughout its 70-year history, the Appraisal
Institute is the leading organization for professional real
estate appraisers. Reflecting their unbiased and objective
approach to real property appraisal and analysis, members
of the Appraisal Institute are required to adhere to a strictly
enforced Code of Professional Ethics and Standards of
Professional Appraisal Practice. Appraisal Institute members
may hold the prestigious MAI, SRPA and SRA designations.
The Appraisal Institute advocates equal opportunity and
nondiscrimination in the appraisal profession and conducts
its activities in accordance with applicable federal, state, and
local laws.