Does Remodeling Affect the Appraisal? A Look Into Renovations and the Appraised Value

There are always pros and cons to any home renovation. The biggest pro is that your home will look better, and the biggest con is that it always costs too much money.

Bricks Home RemodelRenovation pros and cons also apply when it comes to home appraisals.

Renovations do give your home added value, but most likely, not as much as you spent on the renovations in the first place.

The question is then, are they actually worth it?

We will touch on that in a second. But first, let’s talk about the problems with them and the ones that contribute the most and least value.

I want to note that this is all written from an appraiser’s perspective. When it comes to the practice of real estate valuation, appraisers are required to be independent, impartial, and objective. There should be no bias.


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The problem with renovations and appraisals

A common problem with renovations is that people spend money on the wrong things. They spend money on things that are not always practical when it comes to added home value.

Carrara marble counters and heated floors might appeal to you, but do they add more value to an appraisal?

Not so much.

What about a sauna in the bathroom, expensive bathroom hardware, and smart appliances?

Probably not.

Most of the time, renovations like these are done for the homeowner, not for the added value to the house. They want the finishes and upgrades they choose, in the look they want, without consideration of the added market value.

Think of how many buyers would actually pay significantly more for these kinds of updates?

In most markets, not many.

So what kind of renovations should you do then?

Keep reading.

Renovations that increase appraised value the most

PaintingAt this point, you’re probably thinking, why even bother with renovations at all?

Good news. There are some renovations that add the value you hope to get from them.

Most of these updates are much-needed cosmetic updates to outdated homes.

Many of them you can even do yourself, without the help of contractors.

However, if you do try and do these yourself, make sure you know what you are doing.

Renovations that increase appraised value:

Renovations that add the least value to your home

On the flip side, there are many renovations that don’t make financial sense. These are typically renovations done from emotions and not practicality.

Most of the following are completely unnecessary, and the lack of added value reflects that.

Here are some other renovations that don’t make financial sense:

  • Installing a pool
  • Converting a bedroom to some other use (No, you don’t need a wine cellar, and neither does the new owner)
  • Putting carpet over the hardwood
  • Converting the garage into a “studio” or “man cave”
  • Closet renovation
  • Bathroom/bedroom addition
  • Plumbing and electrical
  • Insulation
  • Extensive landscaping
  • Outdoor kitchen
  • Crown moldings
  • Things appraisers can’t see
  • Overbuilding for the neighborhood
  • Fountains, ponds, gazebos, playgrounds
  • RV garages
  • High-end fixtures and finishes

The worst of these (Unless you live in a high-end market) are high-end fixtures and finishes.

I have done appraisals on houses where people spent half a million on high-end finishes for their home, only to get half of the cost back or less in the appraised value.

So is the remodel worth it?

Yes and no.

Now that you have read the lists above, making the call is up to you. Renovations can work in your favor, and sometimes they won’t.

Some general rules of thumb:

Renovations that add the most value:

Most of the time, if you are updating outdated features of your home, you should get your money’s worth. Just keep the spending reasonable and deliberate.

If the updates you make are tasteful and appeal to a large market, the chances of them increasing the appraised value are higher.

Renovations that add the least value:

If you are renovating out of personal preference for luxury or fun, then you might find yourself in the hole. Don’t expect to get the added value from renovations that are over the top and unnecessary.

Founder, Principal at Realvals
Austin Fernald writes about the Bay Area and Northern California real estate market, as well as the real estate appraisal industry as a whole.
Austin Fernald

14 thoughts on “Does Remodeling Affect the Appraisal? A Look Into Renovations and the Appraised Value”

  1. Hi Austin! I have a question.

    My wife and I purchased a really runned down home. We only put down 10% because we needed the money for renovations. It’s a 3 bed and 2 bath. We changed everything on your listed.

    Remodeling kitchens and bathrooms (We went all out)
    New windows and bigger size
    New hardwood flooring
    New paint
    Replacing the front door
    Replace garage doors
    New furnace
    Canned lighting in dark rooms
    Remove popcorn ceilings
    Open up some walls (If they are not load bearing)
    New roof

    All interior is complete! We are still stuck in PMI. Our goal is to get out of it!

    The issue is. We need more time working on landscaping and deck. Does it make sense to get appraisal even when the exterior isn’t complete?

    Reply
    • I’m not sure where you are located, but that sounds like enough improvements to be able to get enough equity to remove your PMI. Landscaping does not contribute nearly as much value as all of the improvements you have made already. As long as it doesn’t look like a dump from the outside, you should mostly likely go for it if you think it will help you to get out of PMI.

      Reply
  2. We have just started demo for a remodel of our house. Two different people have contacted me, interested in buying. The second person says they want to do the remodel themselves. We have already pulled up carpeting in two rooms and started some painting, but not finished. We are working out clearing the land to open up the property lines as well. After we finish the landscaping and deep cleaning, should we do any more of the remodel process for the rooms we have already started? Or are there certain things we should go ahead and do before getting an appraisal? Both people live in close proximity, so I’m hoping that having the extra interest will help get the best offer.

    Reply
    • Doing an appraisal during a remodel is always a bad idea because the appraiser has to find comparable properties in the area in similar condition, which means they have to find properties that are under construction like yours.

      Reply
  3. I have a few questions.
    What about a new roof when the roof at purchase was 35 years old? (IE. near end of serviceable life) How about solar panels? (purchased outright or with unsecured loan)

    When we purchased the house the 1st floor square footage was not included in the appraisal, It was a “game room” type space and the appraisal called it a basement (but none of the walls touch dirt, the house is sitting 100% above grade). I assume this was because it did not have HVAC in that space but now it does. Do you think that square footage should be included in the gross living area now? (it’s heated and cooled, it sits 100% above grade, and it’s accessible via a stairway to the 2nd floor main living area, IE you never leave the house coming or going from the game room).

    Reply
    • New roofs are taken into consideration in the overall condition and quality. In most cases, owned solar panels do add value. The additional room you are referring to should definitely not have been called a basement. I would have just called it a bonus room. If it is accessed from the main house (Without going outside or through the garage), and it is heated/cooled and finished like the rest of the house, then it would be considered part of the overall square footage.

      Reply
  4. Would adding an Electric Fireplace that is attached to the wall add appraisal value? It is hung on the wall using brackets that screw into the wall studs. It will plug into an existing outlet (the mantel slides off to access the outlet as needed).

    Reply
  5. Own a 1960’s home in PA that does NOT have AC. Looking to add AC, new windows, update roof but wondering do I perform improvements then refi or can an appraisal provide insights as to which project to do first and then refi to get best bang for buck.

    Reply
  6. I’m in the process of doing a refinance. However, I was in the middle of replacing my kitchen floors. The appraiser wanted to schedule an appointment this week. However, the floors are already partially taken up. My contractor is scheduled to begin work sometime next week. Should I hold off of getting the appraisal until after the floors are done?

    Reply
    • Sorry for the late response but for anyone else reading this, don’t ever get an appraisal if your house is being updated in the slightest. Most lenders will not allow the appraiser to appraise the property as if the repairs have been completed, so they are stuck having to compare your property to ones that are in far worse condition.

      Reply
  7. Hi, Austin quick question I’m in the process of purchasing a home to renovate, I’m using hard money to purchase and rehab the property, my question is that they’re requesting an appraisal for the property, will the appraisal be valued subject to the renovations that will be done? Also, I’m a bit concerned because where the property is, it has a few homes on the same street that are vacant, but there are some homes in the same area under a
    mile radius that were renovated and sold for $122 ppsf would the homes that are vacant be a factor?

    Reply

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