A beautiful mural for a child’s bedroom. A handmade gazebo for early summer nights. An elaborate and well-maintained garden. Buyers and sellers may highly value these additions, but appraisers will not.
These cosmetic features do not raise a home’s appraised value, says David Morgan, a Dallas-Fort Worth area broker and Certified General Appraiser with 35 years of experience in residential and commercial real estate.
“As an appraiser, you’d look at homes that sold with a simple gazebo and ones that sold without, and chances are there’s not any difference in the sales price,” he says.
Site improvements, such as an accessory dwelling unit or an outdoor living area with kitchen, can add value. Clients should not expect a dollar-for-dollar return on their investment, Morgan warns.
“I’ve seen people put in a $50,000 outdoor living area in a $200,000 neighborhood and expect to get $50,000 more when they go to sell it, and it’s not there. It’s an overimprovement. You paid more for it than the market will recognize in the value increase,” he says.
Swimming pools are the classic example of an over-improvement, Morgan says. “You put in a $60,000 pool in a $300,000 neighborhood and it increases the value maybe $20,000 or $25,000.”
The market value of these improvements matters because deals can be at risk if the property is appraised below the asking price. Depending on the contract, the buyer can back out of the deal or negotiate a different price. Buyers can also find another lender and appraiser, which Morgan says is not uncommon.
That said, not all site improvements or cosmetic updates add value, but most add marketability, Morgan says. “That means it makes it easier to sell because buyers like it, which usually results in less time on the market. However, it’s wiser to remodel or update kitchens and bathrooms than build a gazebo or a fancy mural. That’s where real value is added,” he says.
Great way to try and simplify a complicated issue.
Being in the business for 40 years now and I still have clients that want to tell me what an improvement is worth based on its cost of installation or current cost of installation. Site improvements added early on can increase most property values but I am talking about site improvements like well-placed evergreen trees (live oaks come to mind) and covered porches and outdoor kitchens are done in line with the quality of construction of the home. Frankly, the trees are the biggest bang for the buck followed by a covered porch/patio and then something like an outdoor kitchen.… Read more »
Great article. Would really love the option to post this online.
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How do you feel About these Elaborate Whole home Generators I see people investing in lately? After the “Great Freeze of 2021” I have noticed a lot of advertising for and I have seen a couple of homes that have these systems. Some of these Generators are fairly expensive I just don’t see the value from an appraised value standpoint. What is your opinion?
You could do an “air extraction” for an incremental value, or paired sales comparison. If you can’t find sales with this type supplemental electrical generation, in my opinion, not much value could be attributed.
The first two paragraphs contradict each other. The appraiser says he finds no difference in the sales price and the paragraph above says buyers and sellers highly value these improvements. Both cannot be true. If buyers value them there will be a difference in price. It is more accurate to say that the difference in price due to the mural or gazebo may not be measurable. It may exist but cannot be extracted from the market data or is too small to discern. There is typically a range of value for housing rather than an exact figure. A $100,000 listing… Read more »
Great analysis! Thank you!!
Sounds more like semantics.
If I were a Lender I would side with Mr. Morgan.
If I was a Buyer’s Agent, I would say… Listen to Mr. Morgan because you might have to put up more cash to satisfy the Lender. Do you have it?”
If I was a Listing Agent, I would say… “Mr. Kahane might be right but if he is not then you will have to adjust your Listing Price down to something more realistic… like 30 or 40% of what you spent on that pool and not 80%”.
In my experience most appraisers don’t give the “fluff” much value.
I’d love to hear insight on things like solar power and rainwater capture devices. My understanding is the value is in the savings and not much more. Appraisers need only respond.
Solar panels are sometimes tricky. If the system is leased, Lenders will not lend on them. Furthermore, we typically use “market analysis” to prove “market value”. We must compare very similar properties with the solar system being the only difference. Then, we can derive the difference in the amount the buyer will pay for the system. Most homeowners that install solar systems do not, typically, sell shortly afterwards. There are means of valuing solar that not all Lenders will accept. We have a service that helps calculate the “PV Value”. This requires very detailed information of the entire system. Most… Read more »
Nice read, although I was expecting a thorough list of home improvements categorized into those that increase price and those that don’t.
There is no “list” . each and every market must be analyzed to determine the market reaction to such amenities.
Thank you Cathy, I was thinking there could be a list of commonly performed upgrades that sellers believe erroneously will drive the price up, and conversely, less commonly performed upgrades that will increase the sales price and may be overlooked. I’m talking “TOP 5” of each category, which I would find extremely helpful.
Do any of you have an opinion on how much a neighbor’s roosters, crowing non stop, would negatively affect a seller’s property value? Your input would be very helpful. Thanks for your input. Sincerely David Figueroa, Realtor.
I thought REALTORS® were not supposed to use the word “value”; that the word “value” was an appraiser’s term”?
Just coming across this article now. My how it has aged lol.