More than half of all homeowners state they plan to take on a major home improvement or renovation project exceeding $10,000 expense within the next year. There is a greater interest in new, young buyers investing in fixer-uppers as a way of increasing wealth and fair market value of homes. Some homeowners are choosing to improve their homes even if they do not plan to sell them soon. Most homeowners in the USA know their home is their best investment. Keeping it attractive, kept up, and up to date are good ways to protect that investment regardless of when it may sell.
Home updates are for joy and a return on investment may not be the focus if a homeowner is not planning on ever selling their home. However, most financial advisors would caution that their best money spent will be on improvements that add immediate resale value to their home. In this article, we hope to help homeowners understand how to assess the fair market value of homes, the benefits to increasing the fair market value of homes, and the best ways to increase their home’s fair market value.
How Do Homeowners Calculate The Fair Market Value Of Homes?
The fair market value of homes is the amount of money a homeowner can expect to get if they sell the home privately. It is a monetary tool that helps homeowners understand their home equity, their investment strength, and how much they will gain if they sell. There are many factors to consider when finding home value including area, land, adjoining land, comparable nearby properties, and market rates. To calculate the fair market value of homes, there are a few tools available.
Online comparative valuation tools such as CoStar or Zillow can give a homeowner a ballpark estimate of market value by considering improvements, purchase cost, and general trends. If a homeowner wants a slightly more accurate estimate, they can consider a comparative market analysis (CMA) which closely matches their property to others nearby that have recently sold or are on the market. A homeowner can do an informal CMA by looking at the real estate market in their area for similar homes.
If a homeowner wants a detailed valuation of the fair market value of homes, it is best to use an appraiser. Appraisers carefully examine the home’s structure, features, maintenance, and needed repairs that would give the home value. This value is what lenders will finance if a buyer is interested in their home. Expect to pay appraisers several hundreds of dollars each for a complete appraisal with reports. Hint – homeowners can also use these reports to guide needy areas that may help improve the fair market value of the home.
What Are The Benefits Of Increasing Your Home’s Fair Market Value?
Increasing the fair market value of homes improves equity, buyer appeal, and resale values. Often, in the process of investing towards increasing home value, homeowners will also improve the home for themselves. Improving the fair market value also involves improvements that can increase the joy of living in the home, improve a home’s efficiency, reduce maintenance and upkeep costs, and make the home more attractive.
Besides these subjective and immediate benefits of increasing the fair market value of homes, there are some hard facts to keep in mind. Before undertaking major renovations or improvements of any kind, we recommend considering the return on investment, the margin of investment and long-term projections.
Return On Investment (ROI)
Return on investment, or ROI, refers to the amount homeowners are likely to recoup after a financial investment in their home. It is the most important factor to consider when thinking about the fair market value of homes. There is little value in putting $40,000 into a new kitchen and bathroom if it will only gain a homeowner $20,000 in home value.
With every home improvement or upgrade, investigate what the return on investment will be. If a homeowner has several improvements or upgrades they are considering and cannot decide where to start, it may be good to look at remodeling magazines which offer a cost versus value report that can help a homeowner calculate what a project may cost and what return on investment they can expect.
Margin Of Investment
Watch for trends in the neighborhood. Paying close attention to the general market value of homes nearby will give a homeowner a good sense of how much to invest in home improvements. Focus on projects that will bring the home up to, but not exceed, the fair market value. And then, only invest up to as much room a homeowner has within that margin. For example, if the house is already worth $300,000 and the local market value is $350,000, a homeowner has up to $50,000 to invest.
Housing costs rise if a homeowner is looking into the long term. If their plan is to stay put in their home for a decade or two, chances are a homeowner will recoup all but the most lavish of investments. Balance this long-term outlook with updates. If investing in improving the fair market value of homes is a point of planning years into the future, it is a better idea to invest in upgrades not likely to get outdated again. Consider sealing and insulation, windows, and vinyl siding over trendy appliances.
A Guide To Increasing Your Home’s Market Value
After considering the fair market value of homes in the area and the possible return on investment based on long-term projections and budget, a homeowner may have decided that home improvements are a good idea. So, what are the best projects to undertake that can quickly improve the value of a home? Below are some great home improvement areas to invest in.
Curb Appeal And Landscaping
For new homeowners, improving the front of the home is the least expensive and most effective way to increase the home’s fair market value. First impressions are important in the housing market; it does not matter how beautiful the interior of the home is if a homeowner cannot get potential buyers through the front door. Rather than completely leveling the yard and starting again, work around the landscaping assets the home already has, such as mature trees, to get the best return on investments.
Focus on increasing the overall efficiency by planting native trees and shrubs that can help cool the house. If the house is in a wet climate, ensure that lawns are kept neat. Add perineal foliage that will cut down long-term costs. For a house in a dry climate, focus on plants that require less water and install low-flow and high-efficiency irrigation systems. Avoid synthetic turf or gravel which increase energy costs and decrease environmental friendliness. Lastly, make the home stand out from neighboring ones with attractive flowers and a newly painted front door.
Kitchens And Bathrooms
Kitchens and bathrooms are the best places to invest in increasing a home’s fair market value. Outdated kitchens and bathrooms can dramatically decrease the resale value, especially considering how the housing market is forcing many millennials to buy first homes that could use updates and improvements in these areas. Kitchens and bathrooms are high-traffic areas that are frequently used and the most difficult to change. Potential buyers can imagine repainting a living room much easier than they can imagine replacing the kitchen counters or upgrading a bathtub.
Remodeling these rooms may seem intimidating and expensive, but that is not always the case. There is no need to go with top-of-the-line cabinets, counters, and floors. Minor kitchen or bathroom updates recoup ¾ of their invested cost immediately whereas upscale remodels only get half their monetary investment back. Avoid expensive marble, commercial appliances, and heated towel racks. All a homeowner needs to do to their kitchen and bathrooms is a basic update.
We know kitchens to offer the largest return on investment. Replacing old, unmatched appliances with new, matching, energy-efficient models is a great place to start. New tile or laminate flooring is far more aesthetically appealing than the old vinyl of decades past. Quartz or granite countertops can be a great investment if the home has Formica, and a facelift to the cabinet fronts or adding a tile backsplash to an appliance is always a good idea.
Bathrooms are a little more challenging, but even addressing simple things will improve appeal dramatically. Consider new fixtures, vanities, and toilets. Re-tiling can be an easy DIY project with enough research. If a homeowner has the budget, and it makes sense in the market, they cannot go wrong with updating the tubs and showers. Top it all off with a new paint job and some attractive rail lighting to make these areas shine.
Floor Plan And Size
Gone are the days of closed-off parlors and choppy room design. Most buyers now prefer open designs that emphasize spaciousness. Removing a non-load-bearing wall is a fairly easy and low-cost home improvement option. For example, if a homeowner has a separate formal dining room and kitchen consider opening the wall between them and adding an island. Opening the design space in this way adds grace, light, and the appearance of more space.
Adding more square feet can also improve the fair market value of a home, but it can require more investment. Adding a second bathroom, a family room, or a sunporch are all great ways to increase a home’s value. More decent-sized bedrooms will appeal to a wider range of buyers, both big families and singles alike. A finished basement or converted attic adds square footage without the hassle of constructing a new exterior structure. More square footage almost always leads to a higher value and more buyer interest.
Reducing the long-term maintenance costs of a home helps a homeowner while they live there and is attractive to potential buyers. New major appliances such as water heaters, furnaces, and air conditioning units provide potential buyers with reassurance, especially if they have transferable warranties. Easing up cleaning and maintenance by replacing carpet with hardwood, or laminate or wood siding with vinyl all work to increase the fair market value of homes.
Energy efficiency is more important now than ever for new home buyers and there are even special mortgage allowances and grants for energy-efficient homes. In places that experience extremes in temperature, these conservation features can significantly increase buyer interest and increase the fair market value of homes.
Rather than randomly adding energy efficiency features to your home, consider a consultation with the utility company. Most utility companies have certified energy advisors on staff who can tell a homeowner the best way to increase their home’s energy efficiency.
There are many ways to increase the fair market value of homes using energy efficiency features. Installing dual-paned windows with UV protection, replacing attic insulation, and adding LED lighting throughout the house are good ways to start. If a homeowner is remodeling the kitchen, consider using energy-efficient appliances. If a homeowner is planning on staying in their home long-term, they may want to look into solar panels which offer a good return on investment over the long haul.
Convert To Smart Home Technology
Smart thermostats, fire and carbon monoxide detectors, security cameras, smart door locks, and smart lighting are increasing in demand. If a homeowner is already replacing appliances, they can spend a little more to ensure they are smart home compatible. These may not directly add to the fair market value of homes but they will add buyer appeal which gets more potential buyers to have a look at their home.
Techies may be more willing to buy a home that already has integrated smart features. The greatest thing about these home improvements is that they are relatively inexpensive compared to whole-room overhauls.
Improving the fair market value of your home when your budget allows is a good plan whether you are considering selling your home or not. Also, consider the current market and don’t forget to learn about other homes in your area. Take the time to research the best ways to increase your home’s value and then jump in.