Appraisal Institute550 W. Van Buren St.Suite 1000Chicago, Illinois 60607T 312-335-4100F 312-335-4400www.appraisalinstitute.org

Remodeling &Rehabbing:Some Valuable Hintsfor Homeowners

1

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

2 3

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

4 5

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)

77

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

6

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

directory@appraisalinstitute.org. 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.