How do remodeling projects affect an appraisal?

This is a common question and there is only one true answer. Not a very helpful answer, I realize….. “It depends.”  But I do have a framework for you to consider that has been helpful to many.

Imagine yourself paddling a canoe in a river. If you are paddling with the current, you will make lots of progress. But if you are paddling upstream against the current, you will get more exercise than distance.  The current in the river represents the change in your local real estate market. Your paddling effort represents the expense of remodeling.

Assume you own a house in average condition worth $400,000 and decide on a $60,000 kitchen remodel. How much does the new kitchen increase the value?

One way to gauge this is to wait five years and sell the house. If the house sells for $460,000, you got your money back, right? Not so fast. That is $60,000 worth of paddling, but you need to know if you were paddling with or against the current. If you had not remodeled, it may have sold for $440,000. So maybe the true cost of remodeling is $60,000 minus the $40,000 of market increase.

The best way to know the value of remodeling is to compare houses like yours in the current market. You may find that the houses with remodeled kitchens are selling for 10% more than those without, other things being equal (they never are). Appraisers are trained and experienced in doing this. I welcome your call.

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