Our homes aren’t just where we lay our heads down at night or store all of our belongings — they’re also an opportunity to build wealth through home equity. As your home’s value appreciates, you’re earning money just by owning it. It’s a simple way to build personal wealth, providing you maintain the home and keep it in good condition. For example, people who sold their homes in 2018 were able to sell at a median of $55,000 more than their initial purchase price!
On the down side, it’s hard to pinpoint how much a home will appreciate over time. There are many factors at play that contribute to a property’s market value, such as market temperature (is it a buyer’s market or seller’s market?), market inventory (are there enough houses to meet demand?), and inflation. On top of this, you may not even be ready to buy or sell a house when the market is in your favor!
If we lived in a perfect world, we’d buy a new house when the market is on our side … but, that’s the thing about the real estate market — it doesn’t wait for anyone. Don’t worry, though, because that doesn’t mean you’ll get the short end of the stick. You could buy a cheaper house that needs some work and make plans to fix it up. In which case, it helps to know a little bit about what goes into home value, and how you can increase that value for the appraisal when the time comes to sell.
How to increase home value for an appraisal
The trick to buying a fixer-upper (or even an investment property) is determining how to increase home value for appraisal. Even though you may not intend to sell your home for a while, it’s still beneficial to know what you can do to improve your home so you can get the top dollar when you do decide to sell.
First things first, you’ll want to understand how a home appraiser calculates a property’s value.
How do appraisers calculate value?
An appraiser doesn’t just look at the house when they are figuring out the market value. They’re also looking at the bigger picture. They’ll consider external factors such as:
- What are the sales prices and appraisal values of recently sold comparable homes?
- How developed is the neighborhood?
- Are there any notable market trends?
- How large is the lot, and what is its zoning classification?
- What is the driveway made of and is there a garage or car storage?
- What does the home’s curb appeal look like?
For the property itself, an appraiser is going to look at:
- The square footage of the home
- Number of bedrooms and bathrooms
- Materials used for flooring, windows, countertops, and so on
- The overall condition of the home
- Have the bathrooms or kitchen been upgraded?
- Does it have a full or partial basement, a crawlspace, or attic?
- Have other home improvements and upgrades been done?
- Are there other desirable features?
- Waterfront view
- Close to public transport
- Swimming pools
- And so on
Improvements that should be made first
You’ll want to tackle the projects that will give you the highest return on investment — which refers to how much money you’ll get back from the project when you sell.
Do keep in mind that unless you’re working on a fixer-upper, you aren’t going to get 100% or more of your investment back. You’ll just get a percentage back. Fortunately, some improvements will net you a higher return on your investment if that particular feature is in high demand in your neighborhood.
If you intend on living in the home (or even renting it out) for a while, it’s a good idea to do the improvements sooner rather than later. By doing them early on, your family (or tenants) can enjoy the new amenities and features, thus maximizing the value of your investment.
When you’re trying to come up with a plan to figure out how to increase home value for an appraisal, you first need to consider the purpose of the home: Will it be a rental property, your primary residence, or do you want to flip it?
“There’s a difference between renting and selling. For renting, you’re going to do minimal renovations. If you’re going to sell, curb appeal is your biggest thing, followed by the kitchen.”
Best curb appeal improvements
A great curb appeal project you can do that’ll give you the return on investment is to replace the garage door. You may spend close to $4,000 on the project, but you’ll get about a 94% return when you decide to put your house on the market.
Another outdoor improvement that would give you a decent return on investment is to do a manufactured stone veneer project. If you remove the bottom third of existing vinyl siding from the front facade of your home and replace it with manufactured stone veneer, you could spend $10,300, and this improvement would net a 92% return.
Other curb appeal ideas to increase the value of your home include:
- Investing in flowering plants native to the region
- Replacing and updating vinyl siding
- Refinishing the driveway
- Re-staining or refreshing the deck
- Updating light fixtures and house numbers
Best kitchen improvements
You don’t have to go broke when you’re doing improvements to increase your home’s value, but you also don’t want to use the cheapest materials you can find, either. Ideally, you should opt for mid-range materials.
For example, if you wanted to install a granite countertop, there are four or five (depending on manufacturer) grades to choose from:
- Grade 1 granite is your builder’s grade option and is often found at your local big-box home improvement store. The average cost for this grade is usually between $39 to $51 per square foot.
- Grade 2 granite is a good mid-range option because the material offers more unique colors, uniformed patterns, and is about three quarters of an inch thick. The average cost for this grade is usually between $52 to $63 per square foot.
- Grade 3 granite is a higher-end granite that offers rarer colors and patterns than grade 2. The average cost for this grade is usually between $75 to $110 per square foot.
- Grade 4 (or 5) granite is the most exotic, hard-to-find granite, and it is not cheap. The average cost for this grade is usually between $180 to $200 per square foot.
A minor kitchen remodel using mid-range materials can cost $26,000, but it could net a 72% return. This renovation might include:
- Shaker-style wood panels and drawer fronts on existing cabinets with new hardware
- Energy-efficient range, refrigerator, and dishwasher replacements
- Granite countertops
- New sink and faucet
- New flooring
- New paint and trim
If you did a major kitchen remodel with mid-range materials, you could spend $75,000 and could see a 57% return. This renovation might include:
- Semi-custom wood cabinets
- A three-by-five-foot island
- Granite countertops
- Double-tub stainless steel sink with single-lever faucet
- Energy-efficient range
- Vented hood
- Built-in microwave, dishwasher, and garbage disposal
- Custom lighting
- New flooring
- New paint and trim
With these lower returns on investment, if you want to remodel your kitchen, it’s smart to do it as early as possible so that you can maximize your enjoyment of it before you sell your house.
Choosing a property with the highest potential to increase value
As of spring 2021, 91% of real estate agents who participated in our Top Agent Insights Q1 survey say that housing inventory in their market is lower than expected, especially if you’re looking for a turnkey property. Even for properties that aren’t move-in ready, 94% of agents say bidding wars are on the rise, which makes finding a property challenging — but not impossible.
When you’re looking for properties where you have the potential to increase the home’s value, here are some key elements to seek out.
Space for more square footage
Adding more square footage to a house is a great way to add value to the property, and there are a lot of ways you can do this. Some ideas include:
- Increase the livable space by finishing the basement, which could cost anywhere between $2,800 to $33,985 with up to a 70% return
- Create a bonus room over the garage, typically costing $115 per square foot or $45,000 on average with up to 60% return
- Adding a bathroom (or extending an existing one) can range anywhere from $5,000 to $35,000 and could net a 50% return
- Get more use out of the front porch by converting it to a sunroom, which ranges between $8,296 to $24,830 and can net a 75% return
Updating the outdated kitchen and bathrooms
Along with kitchen upgrades, bathroom upgrades can add a lot of value to a home.
When you’re looking at properties, don’t shy away from the bathrooms with pink tiles or carpeting. You can spend up to $24,000 on a mid-range upgrade and see a 60% return when you’re ready to sell.
Space to make multi-generational living space
Multi-generational living spaces are in demand now more than ever, thanks to the COVID-19 pandemic. Households are growing to include elderly parents, adult children, and even extended family members, so the need to have multi-generational living space is a top priority on the buyer’s list — and it’s likely to stay in demand for a while.
Multi-generational living spaces can be anything from a second primary bedroom and bathroom to a full-on addition or guest house. You can look for houses where there is space above the garage for an apartment, if the basement can be finished and turned into a private living quarters, or if there’s enough room in the backyard for a shipping container apartment.
Note: If you want to make a little extra money, you could rent out the newly created multi-generational space to roommates, or list it on a platform like Airbnb or VRBO.
Knowing how to increase home value for appraisal builds equity
Everything you do to your property is going to have an impact on its value, and any good investor knows that in order to make money, you have to spend money. Even if you’re just going to buy a house to flip it, you need to think carefully about what renovations you want to do because not everything will pay off when you sell.
“You have to figure out your profit margin. Most flippers want to make at least $30,000; otherwise, it’s not worth it,” says Anderson.
Buying a house is probably one of the largest purchases you’ll ever make in your life, and the second you get the keys into your hands, you’re building equity. As you would with any other kind of investment, you want to be thoughtful when making your decisions and methodical when making improvements. When the day comes that you decide to sell your house, those improvements could pay off big time!
Header Image Source: (Phil Hearing / Unsplash)