Often, as a contractor, we get asked the question, “If we renovated this component of our house, would we get our value back or not?”

Understanding the Value of the Renovation

This is always a subjective question and the answer always depends of the scope of work, value of the existing home, value of the homes of similar size and area in addition to the cost of the renovation. Typically, for one room renovations or minor alterations, 20130507_161320an experienced realtor should be able to give a good opinion based on what is on the market currently and what the demand is for the renovation you are considering. For more extensive renovations, especially when considering getting it financed through a lender, the best way to get a clear understanding of the value of the renovation you are contemplating is to get an appraisal from an accredited appraising firm.

An appraisal is a service that uses a combination of direct comparisons, and cost of construction guidelines, among other methods to systematically determine the end value of your property when your major renovations are complete. In order to complete an appraisal, an appraising firm needs four items from the client:

1) Access to the existing property

2) Drafting plans showing the home with the proposed changes

3) Specification list showing the type and quality of materials that will be used in construction

4) Budget of the proposed work

Once these items have been collected and submitted, an appraisal can be ordered. A typical appraisal costs between $450 and $500.

Appraisals are a Guide and NOT Facts

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Keep in mind that the purpose of getting an appraisal is to get a sense of the value of the project before it starts. Once the appraisal comes back, you can then decide if this is a project you want to move forward with, based on the completed value. It is important to note that when you take your project to the bank, they will most likely not use the appraisal you commissioned, but will order another one just to avoid a conflict of interest. However, in the event that either of the appraisals are off considerably, one can be used against the other to investigate why and adjust value within reason.

Getting an appraisal does not guarantee that your home will sell for the appraised price, but it is a great tool in understanding the elements that make your home valuable, and it’s key in determining if your renovation project is a sound financial decision.