How do you arrive at my property’s value?
The short answer is that it depends on what each client has ordered or instructed, otherwise known as our “scope of work”. Appraisal values can be derived from three different approaches: The Sales Comparison Approach, Cost Approach and Income Approach.
The Sales Comparison Approach analyses comparable sales from the neighborhood to arrive at a value for the Subject Property. This is the approach most commonly used for residential properties and is the only approach used for vacant land. Most market participants, including buyers, sellers, realtors and lenders, look to neighborhood sales first and foremost as a general indication of value. For that reason, the Sales Comparison Approach is typically the most relied upon when establishing property value.
The Cost Approach is also used, usually in the same report. This approach establishes the value of the land, plus the replacement cost of all structures and improvements to the property, and then deducts depreciation of those physical improvements to arrive at a total value “as-is”, meaning in the Subject’s present condition. Although the Cost Approach is usually included in appraisals (except condominium units and vacant land), we typically do not give much consideration to this approach. The exception would be for so-called “Special Use” properties, which include equestrian ranchettes and training facilities, because it is usually more difficult to find similar sales for special use properties and because they have features that are related only to that type of property.
The Income Approach is less commonly used in residential appraisal, except as instructed by our clients. This approach establishes value through an analysis of rental properties in a subject market. For example, if the property being appraised is a duplex, the income approach would be commonly used to establish value by first arriving at market rental rates for similar properties, then applying a simple formula using what is called a “gross rent multiplier” to arrive at a market value. In neighborhoods that have very active rental populations with lots of investor purchases, the Income Approach is more commonly used in conjunction with, or in support of the Sales Comparison Approach.
The approaches used are then individually weighed and reconciled into a “Final Value” for the subject property.
How will this improvement affect my home’s value?
One of the most common questions I receive from clients is how a proposed improvement will positively impact the value of their home. Like most of our work, the answer is not black and white. It depends. What is the proposed improvement? For example: Joe and Donna are refinancing their home with the intention of using some money to build a pool. They want to know how much it will add to the overall value of their home. In the case of a pool, which is one of the more common additions that homeowners make, the truth is that it almost never is a dollar-for-dollar improvement. Pools can be expensive, sometimes wildly expensive. However, the entire cost to build a pool does not usually translate to the value added to the home by that feature. One former client had spent over $400,000 building a meandering pool/lazy river with custom lighting and landscaping in his backyard for his college-age children. He was not pleased when he learned that, not only was it nearly IMPOSSIBLE to find a similar sale to compare to his home, but that the typical buyer in his neighborhood would happily settle for an average pool rather than pay an extra $400,000 for a home with a lazy river pool. I usually advise homeowners that pools are great additions to any home, just don’t treat it as an investment. Build it and enjoy it with your family.
Unlike pools, adding living area to your home is usually a very good investment in your property. If properly planned and permitted, adding additional living area can typically increase your home’s value on a dollar-for-dollar basis, sometimes more than that. Homeowners often add a bedroom, a bathroom, enclose a porch to make a family room or den, or similar improvements. These are all good ideas if done properly, using licensed contractors. Garages also add value, in addition to being a popular addition and a desirable amenity.
In terms of finishes on the interior of your home, I would advise homeowners to start with the big three: flooring, kitchen and bathrooms. These are often the most expensive upgrades in your home, however they give good value for your investment. How much value? That depends on the quality of the finishes. Did you put ceramic tile floors in, or wood, or maybe marble? What is the quality of your cabinets and countertops in the kitchen? How about the bathroom? Was it a complete renovation or did you just replace the vanity? Partial renovations in the kitchen or bathroom can lead to more problems than benefits, so it is important to consider these questions. As to what and how much to do, a good yardstick is to find out what is being done to other homes in the neighborhood and try to stay in step with those improvements.
Do you consider landscaping in the overall value?
Absolutely! With this caveat: Like some other improvements to a home, it can be difficult to quantify the impact that landscaping has on the home’s overall value. It is not, in most cases, a line-item that you will see on a report. But landscaping points to the condition and care of the home. If I pull into a driveway for an appointment and my very first view is of a scrappy, neglected lawn with few or no plantings, my first thought is that this owner could care less about the house. Conversely, when I pull into a driveway and see a groomed lawn, with nice plantings, perhaps with some hardscaping (pathways, fences, rocks, water features, etc.) I immediately feel better about the property. It feels cared for, even if not everything is perfect in the home. So, I would tell you that good landscaping enhances the overall condition rating for your house.
Landscaping, ahhh, I love it. It is one of the MOST overlooked items for any property owner. Many owners just plain don’t want to deal with their yard. Their focus on improvements begins and ends with the inside of the house. So, they move in and start taking out–bushes, trees, grassy areas, beds, etc. Before you know it, the whole exterior “character” of the home is gone. Or, picture this: An investor buys a home to fix it up and flip it. They quickly gut and renovate the whole interior. Perhaps a new roof and exterior paint will be done too. But the backyard? The front entrance? They might only lay inexpensive sod and throw in a couple of decorative plants. Where is the curb appeal? The character?
Look, I get it, we live in South Florida. It is incredibly hot in the summer, everything grows and some owners just don’t want the upkeep and maintenance of a fully landscaped yard. They also don’t want to have to pay to have it maintained. And landscaping is a costly upgrade. Plants are often expensive (and I won’t even get into the cost of trees!) However, you must understand the overall curb appeal factor for your home. You don’t have to spend a fortune! Mulch, weed barrier and some inexpensive plants along the front of your home and near the entrance can go a long way in adding character, as does a proper lawn in the back yard and some plantings here and there. You’ve heard the saying that paint covers a multitude of sins? Well mulch is like that–but for your yard. So get out there—keep it simple if you need to, or xeriscape so you don’t have to water and maintain so much, but don’t forget the landscaping!