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Downloadable PDF Brochure from The Appraisal Institute

Remodeling & Rehabbing:
Some Valuable Hints for Homeowners

Whether you're thinking about modernizing a room in your home or rehabbing an entire house, you'll want to make sure the money you invest in the project has a positive effect on your home's value. Before you start tearing up tile, ripping out old plaster or buying that "handyman's special" you've had your eye on, you should consult a professional real estate appraiser about the economics of your proposed project. You may receive good advice on questions such as:

   Will the improvement add to or detract from the value of your home?
   Is the improvement feasible and marketable?
   Are neighborhood trends pointing to an upward cycle?
   How to go about it

Keep the Next Buyer in Mind
When it comes to improving your home, don't count on a dollar-for-dollar return on every improvement. For example, real estate appraisers have found that remodeling a kitchen or bathroom or adding a room may bring the greatest return on a homeowner's investment. Some custom installations can actually detract from value, which appraisers call over improvements. Focus on projects that will appeal to the majority of homebuyers—more buyers will appreciate an extra bedroom than a custom greenhouse.

Here are some additional hints to help you plan the home improvement projects.

   Make sure essential repairs are completed before you start improving—a posh sauna won't make up for a leaky roof. In fact, simple and relatively inexpensive repairs such as plastering and painting could earn a better return on your investment than some major improvement projects.
   When deciding what to improve first, take a look around and find out what other homebuyers want. That way, you'll select those improvements for which the market is willing to pay. Beware of over-improving.
   If you do it yourself, do it right. Keep your improvements consistent with the quality of your home and the character of the neighborhood. If you decide that you can't do the job yourself, be sure to contact a reputable contractor.
   Pay a fair price for improvements, not an inflated price.
   Consider energy-efficient improvements. While they may not save you a great deal of money now, as energy costs increase, so will your savings.

The key to all major home improvement projects is sound advice. Calling a professional real estate appraiser, specifically a designated member of the Appraisal Institute, can start you off on the right foot.

Based on their experience and proven ability in the analysis and valuation of real property, they can advise you if your remodeling investment may pay off in the long run.

Is Rehab Feasible?
If you've been bitten by the rehab "bug," you'd better get help or the "disease" could be financially terminal. You need to know if the property is worth rehabbing, if the neighborhood is on an upward swing, how much the rehab will cost and what its "after-rehab" value will be. What you need are the services of a real estate appraiser to conduct a feasibility study. While many people may think of real estate appraisers only in terms of estimating property value for a mortgage loan, professional appraisers perform a wide range of additional services.

A feasibility study is much more than adding the cost of renovation to the cost of the property for an indication of final value. Renovation studies are based on certain economic principles, including those of contribution, increasing and decreasing returns, conformity, and highest and best use. The appraiser explores the alternatives, estimates the cost and potential income/value benefits and, guided by the results of a comparison of the data, develops an estimate of value before and after rehabilitation. If the property is in sufficiently sound condition, if neighborhood trends point to an upward cycle and if the prospective income or value improvement is substantial, a comprehensive renovation program may be feasible.

First, the appraiser gathers information about the neighborhood, city and region and examines economic trends such as population growth or decline, purchasing power, price levels and the employment base in the area. Other factors to be analyzed include:

   PHYSICAL: Street patterns, convenience to public transportation, and available stores and service establishments;
   ECONOMIC: Degree of home ownership, rent and income levels; and
   GOVERNMENTAL: Zoning and building codes and other regulations restricting design and use

A cost estimate to rehabilitate the property itself is obviously part of a feasibility study. Architects and contractors are experts who could also be called in at this stage of the study. An assessment is needed of the character, quality and condition of construction details, including:

   Exterior walls
   Interior construction
   Heating system*
   Gas supply and piping*
   Electric service*
   Miscellaneous items such as kitchen and bathroom equipment*
   Land improvements such as water system, sewage disposal system, walks, fences
(*These must all comply or be corrected to comply with building codes)

After an assessment of work to be done is completed, cost estimates are prepared. Rehab estimates may be based on actual recent costs for the same or equivalent work performed in similar structures. To the basic "cost new" amount is added any additional cost for performing the work in an existing structure. Because rehab conditions are not conducive to the degree of efficiency that is attained on new construction, the cost of rehab work, item by item, is usually higher than for similar new construction. The quality of material may be the same as for new work, but more labor is involved and the conditions are different.

A before-and-after feasibility analysis performed by a professional appraiser can enable you to make a reasonable decision about that potential rehab property. You want to do it; be sure to do it "smart."

Other needs for an appraisal and/or market analysis related to a rehab property include:

   To judge insurance needs
   To estimate real estate taxes after rehabilitation
   To estimate value for a preservation easement donation

Members of the Appraisal Institute:Your Key to Home Improvement Value
A key to major home improvement and rehab projects is your call to a designated member of the Appraisal Institute in your area for a professional appraisal of your property. Members holding the MAI, SRPA or SRA designations of the Appraisal Institute form a network of highly qualified professionals throughout the United States and abroad. They are identified by their experience in and knowledge of real estate valuation and by their commitment to adhere to a strictly enforced Code of Professional Ethics and Standards of Professional Appraisal Practice. With the help of an MAI, SRPA or SRA, you'll know what you're getting into and what to expect before you start!

How to Find a Member of the Appraisal Institute
It's easy to find a member of the Appraisal Institute. Simply go to and look for the "Find an Appraiser" option. You can search for designated members through the United States as well as abroad by name, city, county, state or metropolitan statistical area (MSA). You can also obtain the Appraisal Institute's Directory of Members on CD-ROM by calling 312-335-4100 or e-mailing The Directory disk is available at no charge.


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