The Risks of RenovatingYour House

So you and your family have found the residence you and your family see fit to get old in. The lot is amazing, the people are awesome, and the price was just right. Now like the average property real estate investors in this position you embark on doing small alterations to your residence. A little paint on the walls, maybe some wallpaper, new ceramic tile in this room, corian in that room, a light fixture here a fixture there. At last you are pleased with your now upgraded residence.

A year or so passes and you choose that you would like to refinance for one reason or another. Now assume you realized you could receive a lower interest rate.You tell your loan officer about all the renovations in your residence and how awesome it looks, etc. etc. Your loan officer goes on to tell you about how much equity you have to have in your house and as a result of your great loan to value ratio they could let you cash-out some of that home equity. Regardless of whether you attempt to cash-out equity, your issue begins when the loan officer goes to order an appraisal. The home appraiser goes and inspects your residence and heads back to the office to write up his report. After looking over the data he realizes there is a issue, your residence is huge . . . TOO great for your location.

Your residence has become what appraisers would call “Functionally Obsolescent Due to Super Adequacy”. What this really means is that the renovations you have made to your residence are much higher than the houses in your area so now you investment is in the negative. No homes in your location have sold anywhere close to what your residence SHOULD be sold for and without comparable sales data proof of your property’s value is not possible.. An appraiser is not going to be able to grant a value to your residence any higher than the highest sale price in the location. This may not be so bad for some, but for investors looking to cash out or with low LTVs this might be a real deal killer.

If this really concerns you then you may consider contracting an appraiser or real estate salesperson to provide you a firm opinion. Choose a professional that is knowledgeable about your market area because they will know more than anyone how much homes are being purchased for and what condition these homes are. Stroll your market area and search for signs in the front yards. If you begin to notice a common broker then that is a best bet for a contact. An appraiser can go one step further and provide you a future sales amount based on the changes you are thinking of doing to your home. This should be very helpful if you have bought a property as an investment.

The point here is to be sure you are aware of your market area which is typically defined as your immediate neighborhood and subdivisions up to 1 mile away. Be aware of what properties sale for and what type of construction quality or amenities they have prior to starting major renovations. If you must be Mr. and Mrs. Jones and do your own renovations, don’t be surprised when your property falls victim to the law of diminishing returns.

Article Source: http://www.diyarticlelibrary.com

Copyright © R. C. Smith, a successful real estate expert in the Houston and Dallas TX areas. He oversees Austin Real Estate Appraiser as well as Houston Home Realtor

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