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Increasing Value

Increasing Value

Over the past several years I have tracked the value of improvements that were proven using Matched Pair Analysis. This is a situation where there are two nearly identically properties one with the improvement and one without. This technique allows the appraiser to isolate (and show proof) of the value of the feature. This is an acceptable method of establishing increasing value in improvements. These figures are from a wide range of price ranges.

  • Swimming Pool:  $9,000 to $20,000
  • Bathroom:  $5,000 to $25,000
  • Half Bathroom $5,000 to 18,000
  • Updating:  $5,000 to $28,000
  • (Permitted) Square Footage Living:  $20 to $50
  • Additional Car Storage:  $4,000 to $10,000

Therefore, it’s important to note that renovations or improvements are made as a matter of the owner preference. Situations where the owner will definitely make money, on resale from renovations are limited. Unless you are a licensed contractor that is able to complete the renovations at cost you should be very cautious. You need to do your homework or hire an appraiser to estimate the value of your property before and after the improvements. Once you pay a contractor, purchase material, permits and professionals, profiting on resale is unlikely.

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Improvements
Improvement Values

Update:  Subsequent to the original posting of this blog article, construction costs have increased significantly. Cost increases will typically increase the return on efforts. It is always a good practice to be up to date with costs of materials from local big box stores such as Lowes and Home Depot. 

Ultimately, using local contractors/builders and obtaining multiple estimates is always a good plan. Use local builders with local references. Individuals such as Realtors, Home Inspectors and Appraisers are a good source of recommendations. 

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Housing Values

As a State Certified Residential Real Estate Appraiser, I enlist the use of valuation tools to cross reference my valuations. Housing values take into account many different aspects and sometimes alternative sources can give the appraiser additional data. Being a member of My Florida Regional Multiple Listing Service, we have several valuation sources made available to us. These sources have models that give us a high, low and median range. Additionally, we are provided a confidence rating.

Consumers have sources like Zillow and Trulia at their finger tips. It is very easy to search your address of interest and pinpoint several services that will give you a value. These sites are right on sometimes but often are off  when compared to the reality of a sale or professional appraisal. The reason is these sites use mass appraisal techniques and often do not have the correct or updated data regarding the subject. The data utilized in this type of valuation does not take into account updates and remodeling efforts. Extra features such as swimming pools and accessory structures are not included. Favorable views such as water or conservation are not recognized.

The mass appraisal valuation models collect all sales to come up with a price per square foot amount that is then applied to the subject. This number is  skewed not only by the aforementioned items but also the superior or inferior sales within the area. Unless the neighborhood is a cookie cutter area where all properties are nearly identical, there will be issues. For example if the neighborhood nearby has superior homes, your valuation is likely to be inflated. On the contrary if the nearby developments are inferior, it is likely these sales will suppress your homes value.

Proceed with Caution

Be cautious when relying on this online data to establish housing values. Take a look at the sales utilized (if available) to compare the similarity of those homes to yours. Remember the small cost of an appraisal can save you time (money) when listing your home for sale. A professional appraisal can also save you from overpaying for a new home.

Appraising Flood Plains

Appraising flood plains or FEMA designated flood areas can be a bit challenging.  In the wake of the many storms that produced “rising water” of various types, consumers have come to realize the significant damage that a storm can cause. Tropical storms and hurricanes can cause water to rise in the form of tidal surges, rainfall, waterways and other tributaries that are overcome with a surplus of water. These situations can lead to significant damage and associated costs to restore property to it’s desired condition. The risk of these circumstances is particularly of concern in certain flood zones and therefore there is likely an effect on value. Not to mention the increased cost of insurance in these areas which is also likely to effect value.

Establish the Flood Zone

One part of the lending procedure is to establish the flood zone of the property. Many times the elevation is also necessary in order to adjust and in some cases reduce the cost of flood insurance. The reduction in the cost of flood insurance often occurs when a structure is located in a flood hazard area but is elevated thereby reducing or eliminating the need for flood insurance. The flood zone is provided in the appraisal and additional flood documents are ordered through the lender. In certain conditions a survey may be necessary. The governmental organization FEMA is responsible for issuing and maintaining flood maps. These maps are available through the FEMA website.

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Appraising in Flood Plains

 

The appraiser is responsible for reporting the flood zone of the subject property and analyzing what impact the flood zone may have on value. In some situations consumers will not want incur the additional costs associated with properties located in a flood zone. This is particularly true when the property isn’t located on the waterfront but is subject to the necessity of a flood insurance policy based solely on the close proximity of the water the subject in fact enjoys no access to. In this scenario it is possible that the consumer can purchase and alternative property that is outside of the flood zone or elevated thereby reducing the flood insurance premiums to a preferred rate that is not required by the lender. Some consumers will pay more for a property outside of a flood hazard zone due to the reduced cost of insuring the property.

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Appraising in Flood Plains