Appraisal is a first step in renovation process - September 14th 2012
Over the past several years, the home renovation industry has experienced phenomenal growth. More and more homeowners are now choosing to remain in their current residence, choosing to renovate, as the cost and affordability of homeownership is skyrocketing. As a direct result, some lenders are ordering appraisal assignments that reflect two values within the report, namely “as is” and “as if the renovations are completed”. In order to adapt to the changing times homeowners should familiarize themselves with this process.
There may be several instances where an appraisal, “as is” and “as if completed”, would be required. A homeowner may wish to order an appraisal privately to determine their best course of action. An alternate instance would be when lenders order appraisals for financing purposes. The process of communication is fundamental for all parties involved. Homeowners are faced with questions like “How much do I spend on my renovations?” “What will be the return on my investment?” What should I put my renovation dollars into?” Conversely, lenders will have questions such as “What is the purpose of your renovation?” “Are you renovating to increase the equity in your property?”
A qualified real estate appraiser can help answer these questions by providing their services to the homeowner. A detailed appraisal report on a property would provide two values. One would be pre-renovation or “as is” and a second value would be post-renovation or “as if completed”.
There are tools available to assist the homeowner in the renovation process. The Appraisal Institute of Canada has information to give consumers a better idea of the return on investment they can expect for a variety of home improvements. When an appraiser makes their initial visit to the property, the appraiser would state what is seen upon inspection. Upon their follow-up visit they would state what is seen at that time including all updates. The appraiser would include the “as is” or “as if completed” where the appraised value appears within the reports. The appraiser will not comment on building code compliance or quality of construction unless the appraiser has specific expertise. Sometimes a lender will request a cost to complete estimate or a proposed budget for the renovation project on a specific property. This information does assist the appraiser when determining the two separate values. It is good practice to back up and support any cost estimates, whether they are provided by the homeowner or a contractor.
In conclusion, there are resources available to help the homeowner in determining two values (pre and post-renovation). Also, homeowners can use the services of an accredited appraiser to provide an opinion of value so as to better understand if the renovation is worth their while. The bottom line is that if an owner wants to realize the maximum return on their investment, an appraisal will help to determine this.