What upgrades will actually increase your home value? You have the nicest house on the block, but what is it really worth in an appraisers eyes? Is your stainless steel and granite counter top kitchen worth more than the bigger, outdated home next door? You’d be surprised to know that more often than not, the size of the home matters more than most of the upgrades you have. So if you’re thinking about listing your home and renovating it, I urge you to think twice about dumping thousands of dollars into the nicest kitchen. The appraisal process remains a bit vague for most buyers, sellers, and even agents. Appraisers follow a system but at the end of the day, they get to decide what an upgrade is worth based on their experience and research. And yes, some human bias is inevitable in this process no matter how hard an appraiser might try. Read on to find out what upgrades are worth it! Related Content: 
Who Is An Appraiser?
What does an appraiser have to do with your home sale? If the buyer on your property is getting a mortgage and not paying cash, they will need an appraisal done. If they’re paying cash, they can also opt to have one done although it isn’t necessary. An appraiser is a person who comes out to your property to determine what the home is worth. They are scheduled by the mortgage lender through an anonymous third party company. The lender is not allowed to know who the appraiser is, and cannot directly speak to them. This is a rule that was instilled in order to avoid any corruptive practices where a lender might influence the value of the property. Just like the lender isn’t able to know who the appraiser is, neither is the seller or the buyer. But, a buyer’s agent and listing agent are welcome to attend the appraisal if they choose to.Can I Just Get My Own Appraisal Done?
Unfortunately not. The appraisal is meant to be completely unbiased so it has to be done through an independent third party company that can’t be influenced by the seller or the buyer. You can certainly provide your private appraisal report to the appraiser in the hopes they use it, but I’ve heard of instances where two appraisers valued a property $60k apart.Appraisal Process
So how does this elusive process work?- Lender orders the appraiser at the cost of the buyer
- Appraiser schedules a time to see the property
- The appraiser comes out to your property for about 15-30 minutes and makes sure everything is in working condition and appears to not have any issues.
- They drive around the neighborhood to check out the comparable properties they picked. (Since they use homes that have already sold, they cannot walk inside of them but they can view them from the exterior).
- They type up a report with 3-6 comparable properties.
- They use two methods to determine your home value (see the next section) Once they have altered the value of the comparable homes based on your upgrades, they will then average out the homes.
Two Methods Of Comparing Home Values
There are two methods that appraisers typically calculate the home value with. They are the Sales Comparison Approach and the Cost Comparison Approach. This could vary based on state but from my experience the one I’ve seen used more often is the Sales Comparison Approach A common valuation approach used is the Sales Comparison Approach. According to Investopedia this is “The sales comparison approach is a real estate appraisal method that compares a property to other properties with similar characteristics that have sold recently. The method takes into account the effect that individual features have on the overall property value.” This is the most common method in my experience and how it works is they take a comparable property’s sold price and then add or subtract value from it for upgrades your home has or lacks. For example, your neighbors house sold for $250,000 but they don’t have a screened in porch and you do, so they add $5k to that $250,000 price to make your home value $255,000. They do this with 3-6 comparable properties and then determine your final home value using the adjusted comparable values. The Cost Comparison Approach is another approach an appraiser can use but it’s more common with newer homes. Investopedia defines it as “The cost approach is a real estate valuation method that surmises that the price a buyer should pay for a piece of property should equal the cost to build an equivalent building. In cost approach appraisal, the market price for the property is equal to the cost of land, plus cost of construction, less depreciation. It yields the most accurate market value when the property is new.”What Upgrades Do Appraisers Care About
Unfortunately, an appraiser doesn’t usually add the exact cost of the upgrades to the price. So, if your brand new windows cost you $20k, chances are they will only contribute an additional few thousand to your home value, if anything at all! (I had a deal where the appraiser didn’t include any value for brand new windows since they essentially function the same as older windows according to him). It’s important to focus on upgrades that will bring you the most bang for your buck. Your home doesn’t need top notch upgrades in order to sell for top dollar. So what does an appraiser actually care about?! There are two main categories of items an appraiser looks at – one set is items that are structurally expensive and difficult to upgrade and the other half is what we’ll cover next. The categories that are hard to renovate are:- Lot size– the size of a lot is very important to an appraiser.
- View- water and conservation lots are valued higher.
- Age- newer homes will be worth more than older ones.
- Bedrooms- more bedrooms will help with your property value.
- Garage/Carport – more garage spots will help increase your home value.
- Pool – if your home has a pool it will add to the value.
- Additional features: things like a Mother In Law Suites or sheds will help raise the price of your home.
- Condition- this covers items like the kitchen, bathrooms, and flooring. I wouldn’t dump a ton of money into this but do light upgrades. – Paint exterior and interior of the home for a refresh -Paint kitchen and bathroom cabinets to match current trends -Add new kitchen hardware -Upgrade the light fixtures -Spruce up your curb appeal with new plants -Opt for peel and stick floor tiles for your bathrooms and backsplash
- Heating/Cooling – A new AC/heater can help add value to your home. Also, central air will be more valuable than window units. -If your AC is already working well then there’s no use in upgrading it, you still won’t get the full amount back in ROI.
- Porch/Patio/Deck – appraisers will add value to your home for a larger porch, patio or deck. -Add a screen to a porch -Extend the lanai -Add a front porch/deck if possible
Are All Appraisals The Same?
There’s a stigma that circulates the real estate industry that FHA and VA appraisals are a lot more difficult as opposed to a conventional loan appraisal. FHA and VA are government loan programs so they focus a bit more on safety and condition than a conventional loan would. Among these, they also have certain requirements like no bars on a window (fire safety issue), having a porch railing, no steep steps, no peeling paint in homes older than 1978, an operable stove and appliances, and VA requires no pest or termite issues. Again, it depends on what appraiser you get and sometimes they overlook some of these items but be prepared to repair them if they come up!How To Prepare For An Appraisal
Treat the appraisal like a showing. You want the appraiser to fall in love with the home and view it in the best light possible. Light some candles the day of so it smells fresh and clean, dust everything, mop the floors. Make sure the home looks like it’s in safe and stable condition and repair any noticeable issues. I always recommend having your Realtor meet the appraiser so they can bring comparable properties and fight for your price.