Appraisals—a Key Home Renovation Tool

Shell Busey
August 2, 2013

You probably know that a home appraisal is a wise investment when you're buying, but did you know that an appraisal can help you when you're renovating?

Over the past several years, the home renovation industry has experienced phenomenal growth. More and more home owners are choosing to renovate instead of taking on all the costs of buying up or downsizing. As a direct result, some lenders are ordering appraisal assignments that reflect two values: " as is" and " as if the renovations are completed." If you're planning major renovations you should familiarize yourself with this process.

There may be several instances where an "as is" and "as if completed" appraisal would be required.

Home owners may wish to order an appraisal to determine the best course of action. They're faced with questions like:

  • How much do I spend on my renovations?
  • What will be the return on my investment?
  • How can I get maximum return on my renovation dollars?

Lenders sometimes order appraisals for financing purposes. They 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. The appraiser makes an initial inspection of the property and provides a detailed appraisal report which includes the pre-renovation or "as is" value and the post-renovation or "as if completed" value.

Sometimes a lender will request a cost-to-complete estimate or a proposed budget for the renovation project on a specific property. This information assists 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.

If a follow-up report is required once the work is done, the appraiser states what is seen in a post-renovation inspection, including all updates. This report would include the "as is" or "as if completed" where the appraised value appears. It would not comment on building code compliance or quality of construction unless the appraiser has specific expertise.

Renovations are expensive and disruptive. If you're considering a big reno, you can use the services of an accredited appraiser to provide an opinion of value, and that will tell you and your lender if the renovation is worth your while.