THE VIRGINIAN-PILOT
Copyright (c) 1994, Landmark Communications, Inc.
DATE: Saturday, November 12, 1994 TAG: 9411100522
SECTION: REAL ESTATE WEEKLY PAGE: 12 EDITION: FINAL
SOURCE: BY THOMAS TYE
LENGTH: Long : 108 lines
Q. I upgraded my foundation, insulation and electrical receptacles in the $150,000 house that I recently built. Will I be able to sell my house for the extra $5,000 I spent when I move?
A. For an extra or an upgrade to have value, it must be in demand. If a potential purchaser places additional value in having an upgraded foundation, insulation and electrical receptacles, you may be able to recoup your additional costs. However, usually this is not the case.
Basically, the question is can you find someone who will pay you another $5,000 for the items you have upgraded. If the foundation, before you upgraded it, was adequate for the area and the lot, then it is unlikely that anyone would pay an additional sum for what is termed ``superadequacy'' in appraisal terminology.
For example, if a standard and perfectly adequate foundation were to cost $3,000 and you spent another $3,000 to make it thicker and wider, when it was not necessary, then there would not be a perceived increase in value to a typical purchaser. That means you would not be able to obtain an additional sum for the upgraded foundation.
The insulation and electrical receptacles, if perceived by the buying market at the time you sell, could command a somewhat higher price. This assumes that the insulation and electrical receptacles are not an over-improvement for your house and price range.
Insulation is a relatively low-cost item to upgrade and it has a somewhat minor increase in value due to the relatively moderate temperatures we enjoy here. Once you have a certain amount of insulation, as with many items in a home, you reach what is known as a point of diminishing marginal returns - for each additional dollar spent on an improvement, you get less than a dollar back.
The electrical receptacles, if placed in areas of your house that would typically be useful to a homeowner, may present an opportunity to recoup part of your expenses. It could also be used as a marketing tool when your home is sold.
Usually, however, electrical receptacles are relatively inexpensive to install when the house is new and extra receptacles are placed for specific furniture and appliance configurations.
It is unusual to have a potential home buyer look at a property in such minute detail that he would count the number and location of electrical receptacles in one house versus another. There are so many items of variance among houses that it would be difficult to differentiate any additional value.
If your house were identical to a house next door in all respects except for electrical receptacles, how much more would someone pay for your home versus the one next door?
While there is additional cost expended for these items, it may be that home buyers would be perfectly happy without the upgrade and unwilling to pay a premium for them. In this case, they have served as a personal preference and choice rather than as an investment.
An exception to this would be a seller's market. When houses move very rapidly and prices are escalating, higher prices for extras such as the ones you haves noted can be obtained. The price can become secondary and the additional improvements that you have made can be a justification for a potential purchaser to pay more for your property.
However, if it is a buyer's market, it is unlikely that you could recoup any of those charges. In cases like that, the additional upgrades and extras would usually be viewed as incentive to purchase your home versus one that is relatively similar.
I suggest that when you get ready to sell that you use these items as a marketing tool and perhaps ask a somewhat higher price. Should you not be able to sell the property within a reasonable marketing time for the higher price, this would be a strong indication that the buying market did not perceive additional value despite your added cost. WHAT YOU MUST REVEAL
Q. I am selling my house and am about to have it appraised. My agent has requested that I complete a disclosure form that indicates any problems that I've had with the property.
What items do I have to disclose to the appraiser when the property is valued?
A. You are under no requirement to disclose any deficiencies in your property to the real estate appraiser. However, the appraiser is not conducting a detailed home inspection when the property is valued if you don't.
Items that affect the value and are not readily apparent are very unlikely, unless you point them out, to be considered in the valuation. However, the appraisal is prepared subject to all major components of the house being in relatively good working order, unless otherwise noted.
Should there be items of repair needed to the furnace, plumbing, electrical system or other component of the house, and this is not noticed by the appraiser or disclosed by you, then the property's value would likely be overstated.
The value of a property in need of repair or which has hidden defects, such as structural problems, is the estimated market value assuming that it was in good repair, less the repair costs.
In summary, a property with hidden defects that were not pointed out to an appraiser could be overvalued. However, once those items come to light, the value of the property, with the defects, would change. You are not required to point out deficiencies, but the value of the property would not be accurate because of that. MEMO: Thomas Tye is a Member of the Appraisal Institute and is a Senior
Residential Appraiser. He has evaluated commercial and residential
property in Hampton Roads for more than 15 years. Send comments and
questions to him at Real Estate Weekly, 150 W. Brambleton Ave., Norfolk,
Va. 23510.
by CNB