|
Site Navigation
Client Resources
|
|
|
|
|
Ask the Appraiser?
Renovations/Construction
1. We are considering renovating and would like to know what
items will provide the best return upon resale?
Renovating is a very personal, complex area and every situation has to be looked at
individually. However, the best return on resale in renovating is cosmetic items such
as painting and decorating where there is a limited capital outlay. Surveys by the
Appraisal Institute of Canada have shown investing in the kitchen area to have the
best retained value, followed by bathrooms. I would be pleased to provide a copy
of this survey. Be particularly careful in renovating with respect to resale value,
if the property is now in the upper range of value for the area and involves a
large capital outlay. Remember, location, location, etc.
2. I understand the Appraisal Institute has recently surveyed its members concerning the best payback on renovations and trends. What are the results of this survey and why should real estate appraisers be consulted on renovation payback and trends?
The Appraisal Institute of Canada has developed RENOVA, an interactive web-based guide to the value of home improvements. RENOVA is designed to give consumers a better idea of the return on investment they can expect for a variety of home improvements. RENOVA does this by providing a payback value range derived from the cost of the improvement expressed in dollars. For example, a homeowner might indicate that he or she is considering spending $10,000 on remodeling the kitchen. RENOVA will then provide a payback amount of between x and y dollars for that particular renovation. Homeowners can choose from among the 20 most popular renovation improvements, identified by a survey of AIC members.
Our goal in developing RENOVA was to determine, in the informed opinion of Canada's professional real property valuers, what effect home improvement projects have on the value of resale houses.
RENOVA also ranks the renovation trends, in terms of which provided the highest payback potential.
Consumers should be aware that RENOVA is a guide, which provides ranges. Home values and returns on renovation investments are dependent on so many factors such as the location of the property, i.e. province, rural/urban, the neighbourhood and notably important is the quality of workmanship and materials. For a comprehensive valuation of your home and or renovation project, an accredited member of the Institute should be consulted for a cost-benefit valuation. An AIC valuator can identify the value of your home prior to the renovations being undertaken and provide a projected valuation based on your anticipated renovation plans. Homeowners could save themselves a lot of time, expense and heartache by calling an appraiser first, even before the designer, contractor and architect.
Considering multiple home renovations?
Click HERE to use the all-in-one worksheet.
3. Why is the cost to construct a building not always retained in the marketplace?
The cost to build is not always retained in the marketplace because depreciation comes in many forms. Physical depreciation is the most common form of depreciation, with most property owners having a basic understanding of how this principle applies. For example, if your property is 10 years old and has a life expectancy of 50 years, then the physical depreciation applicable would be 20%. This form of depreciation pertains to the wear and tear a property receives over time. Depreciation may also exist in two other forms, they are; Functional and External.
Functional depreciation may be a poor or inappropriate floor plan. For example, an individual may chose to build a one bedroom home. The majority of the buyers in today's marketplace appear to demand a minimum of two bedrooms and there is generally an ample supply of these properties. Therefore, the market will not pay the cost to build a home with a one bedroom layout. In this instance, the difference between cost and value could be attributed to functional depreciation. External depreciation is a loss in value caused by an external influence to the property. For example, a residential property located adjacent to a non compatible use such as a gas station or night club may be negatively affected by its close proximity. External depreciation may also apply if the economy of a town has been negatively affected by the closure of a mine, fish plant, hospital, etc. The downturn in the local real estate market during the 1990's, can also be attributed to external influences or depreciation. Demographic changes in the population base and high unemployment led to decreased demand in most sectors of the real estate market. Properties were selling for fractions of the replacement cost and limited speculative construction was occurring. As the economy improves and new markets evolve, increased demands will push market values leading to a growth in construction once again. Independent real estate appraisers are key advisers for; buyers, sellers, realtors, builders, lenders and mortgage insurers in this new complex market, where making the wrong choices may be costly.
|
|
|
