I love watching the renovation shows on TV where people will have some work done on their house and then an appraiser comes in and says blah, blah, blah, their house is now worth more. If they were to just leave it at that, I wouldn’t be here to ask this upcoming question.
But of course, they don’t leave it at that. Instead they say that X amount of money spent in renovations now translates to 3.5X (or something around there) in additional value to the home. This seems inconsistent to me, as simple accounting would show that the value of the house is merely the historical purchase price plus the cost of materials and labor in improvements. And this of course has nothing to do with the true value of the property as that will only be determined when the owner and a buyer settle on a selling price in the (potential) future.
Here’s some numbers to help illustrate my frustration. A couple purchases a home for 370,000 dollars. A few months later, they invest 35,000 in internal improvements. An appraiser is brought in to determine the new value of the home. He comes up with 470,000 dollars. Where does that extra 65,000 dollars come from?
Does anyone know? I’ve tried to work through it in my head and with friends, but nobody seems to be able to get past the “well appraisers have a bunch of formula …”
If I was looking to buy a home, and I had access to the same contracting services at the same price that the seller of a property had, I would be put off that the seller already did some reno that I could’ve done, but now he wants more than twice what I could’ve paid myself. Does this bother anyone else?
Am I missing something extremely important and obvious?
The appraiser works for the city so over-stating the house’s value means added property tax. Meanwhile the homeowner is dumb enough to go along with it. He thinks he is more financially secure, he thinks his home is an asset thats equivilent to the money its appraised for.
Essentially just people who never took accounting, business, and economcis seriuosly in their education.
Aside from that the whole business of proper appraisement is always questionable. I love the shows where the appraisers are measuring the value of antique’s. How many of those people actually sell their antique’s for the price appraised? How many of them can sell their junk at all?
Everyone likes to think they’re setting on a bed of cash, as if the asset was cash. The more it’s worth the more secure they feel. They’d even be willing to pay someone to tell them it’s worth more(home owner appraisers) and the city is perfectly content to go along with it(property taxes).
As far as those shows go, who knows. Seems rediculous to me.
You’re kind of thinking in terms of objective value. Houses are worth what people are willing to pay for them. An improvement that costs 1000 Dollars can make the house 10.000 Dollars more valuable, if that makes them that much more attractive to potential buyers.
It sounds like the appraisal process is in place primarily to service tax assessors in the public sector then. Is this true?
I know that appraisal values are considered starting points for negotiating sales. How firm are they? I’ve never bought a home before, but I was under the impression that sellers will rarely get a price significantly below the appraised value because buyers are convinced their house is worth what it was appraised for and will hold out. Therefore, the appraisal process is also central to private property transactions, despite odd calculations and estimates of value. Is this false?
I assure you, I am most certainly not thinking in terms of objective value. Even in my OP I identified the true value of the property as that which is settled upon by the owner and a potential, future buyer. I’m trying to ascertain where the extra value is coming from from the appraiser’s perspective.
My guess would be that the premium you are paying is for the creative “genius” of the person who thought of the idea. That and the “headache” they presumably had to go through to get it done. This in combination with other things of course.
I think this is a bunch of bull myself though. I think that most of the rest of America thought it was too because: Now the prices have fallen
The appraiser is trying to ascertain an estimate for a potential buyer’s subjective valuation. As for the concept of an $X improvement adding $Y(>$X) to a buyer’s subjective valuation, that’s just how selling stuff works. (Ever heard of “putting lipstick on a pig”?). When you’re selling a car, a $10 car wash could add $500 to the price for which you are likely to sell it. Of course, you have the option of not washing it and trying to sell it muddy and slimy, thinking that any buyer would be “smart” enough to subtract the piddly $10 car wash from the ‘clean car’ (higher) price which he would anyway offer. But it just so happens that no buyer looking at a muddy car seems to offer a ‘clean car’ price. Think of the home improvements as a car wash on steroids, and it may start making more sense.