I swear I’m not a grammar Nazi. But today I want to bring clarity to two words we constantly kick around in real estate. What is the difference between “remodeled” and “renovated”, and why does it matter for the appraisal process?
The short answer: Renovated means something has been updated, but NOT completely changed. Maybe cabinets were painted, faucets were replaced, baseboards were added, or the interior was painted. In the example above, the kitchen only has new door handles, so it obviously doesn’t mean it’s renovated, but if it had new paint, hardware, appliances, and fixtures, we’d say it was renovated. In contrast, remodeled means something significant was replaced or walls were moved. If new kitchen cabinets were installed or the kitchen was expanded significantly, we’d say the kitchen was remodeled.
Renovated: The area of the home has been modified to meet current market expectations. These modifications are limited in terms of both scope and cost. An updated area of the home should have an improved look and feel, or functional utility. Changes that constitute updates include refurbishment and/or replacing components to meet existing market expectations. Updates do not include significant alterations to the existing structure.
Remodeled: Significant finish and/or structural changes have been made that increase utility and appeal through complete replacement and/or expansion. A removed area reflects fundamental changes that include multiple alterations. These alterations may include some or all of the following: replacement of a major component (cabinet(s), bathtub, or bathroom tile), relocation of plumbing/gas fixtures/appliances, significant structural alterations (relocating walls, and/or the addition of square footage).
Why does this matter? When something is remodeled (brand new or completely changed), buyers might be willing to pay more for it. Think of a remodeled kitchen and how buyers might spend more money in light of a resulting great room concept or a kitchen that has been expanded beyond other tiny kitchens in the neighborhood. This is where it becomes important to communicate details of the remodel to the appraiser and even what sort of feedback you got from buyers and agents. In other words, how did the market respond to the remodel? Also, if you didn’t know, appraisers actually need to indicate in the appraisal report for the subject property if a kitchen or bathroom is “remodeled” or “updated” (only for lender work). Additionally, when choosing comps it helps tremendously to know more about the details of the home so appraisers make proper comparisons and adjustments. MLS photos can help of course, but then again it’s not always obvious if the kitchen cabinets were actually replaced or if the bathtub is brand new, etc… Value is found in the details, isn’t it?
Application:
- Use the words correctly in listings and appraisals.
- Use the words correctly in conversation.
- Help appraisers understand if something really is remodeled.
- Win the real estate category on Jeopardy by using these words correctly.
NOTE: This post is not meant to rag on real estate agents in any way. That’s the furthest thing from my intention and the way I do life and business. This is simply about knowing definitions and communicating more effectively – especially with appraisers.
I hope this was helpful. If you want to go even further, check out 5 real estate words that make you sound smart.
Question: Any thoughts on stories to share? I’d love to hear your take.
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Hey Ryan:
Interesting topic — renovation and remodeling. Did not know about that distinction. Either of these is a red flag for me as a buyer. If the
seller made their own improvements via Home Depot, I have to wonder what it cost. Usually I find they are hoping for a 50K paycheck for their time and dubious skills. If they have contracted professionals, I see a similar belief at play.
Secondly, aesthetically, I think the whole idea of kitchen remodeling is silly. This presumes changing fashion in cabinets and appliances, this in a world where many people are happy to have a few crates on the walls with pots and pans and a kerosene stove. I won’t even talk about granite counter tops.
Of course I know this is something you have to deal with, the passing fashion end of house value. Sigh.
Thanks Ricardo. Kitchens and design certainly change over time. That can be a good thing though as most people are probably not complaining that foil wall paper and shag carpet are no longer in style. 🙂 I hear what you’re saying though.
Great blog topic. Even after the Fannie Mae UAD definitions of updated and remodeled, there is still quite a bit of confusion in this area. Thanks for the clarification.
Definitely, Gary. I think most people use the words interchangeably, yet it’s still important to know the distinction for the sake of communicating effectively. Thanks so much.
Well said Ryan. Remodeling is definitely going to effect more long lived items in a home whereas updating takes care of the lesser deferred maintenance type items.
Yep. Thanks Tom. Well said.
Ryan,
Great post. Where does the term ‘rehab’ come into play here in the appraisal world? Could you include that into the post as well? Or maybe I missed it.
I know lenders often refer to loan programs where borrowers can roll into the costs of ‘rehabbing’ or ‘renovating’ their home.
Most comon is the 203k Renovation (Reno) or the 203K Rehab loan.
Great question, Brad. The difficulty with the term “rehab” is that it’s used as an all-inclusive word in the real estate community. The same can be said for a word like “updated”. In a nutshell, “rehabbed” can basically mean anything. Someone might say, “We rehabbed the bathroom”, which might mean they “remodeled” (new tub, vanity, toilet, tile, and fixtures) or they “renovated” (new paint, fixtures, etc… nothing major, but a freshening up). To take it one step further, people tend to interchange remodeled, rehabbed, updated, and renovated. I definitely think it’s very important to understand the differences between the two words above in the blog post, but on a practical level we can’t be anal or judgmental about usage of these words. There is no word “rehab” in the Fannie Mae appraisal form. The only two words are “remodeled” and “updated” (renovated). Does that make sense? Is there a difference between the 203K Rehab & 203 Renovation loans you mentioned? I’m curious now.
Hi Ryan,
No difference between 203K Rehab or 203K Renovation loans. Just a different way to refer to it.
But HUD/FHA officially refers to it as the 203K Rehabilitation Loan….which reminds me of someone rehabbing for drug addicition or being rehabilitated while in prison:-)
Nice, Brad. Thanks for the skinny on there being no difference. The 203K is an excellent repair loan. It’s a good tool to have in your loan officer bag of tricks.
Brad, good approach to these confusing terms and what they mean. As an appraiser, I am always careful to distinguish between the terms “updated” and “remodeled”. In appraisal terminology, “remodeling” is defined as “Changing the plan, form, or style of a structure to correct functional or economic deficiencies.” (Real Estate Appraisal Terminology, by Beryl N. Boyce, Sponsored jointly by the AIREA & SREA, 1975, Ballinger Pub. Co.). Admittedly, this is a rather old publication, but it enlightens us to the fact that remodeling changes things more dramatically than simply updating or renovating. Updating, as you’ve well said, is simply bringing the property, or elements of it, to a more current, or modern appeal.
Then, there is the concept of “upgrading”, which, many times is done in the process of remodeling and/or updating. Additionally, condition generally changes with all these activities.
I’m glad you’ve brought these concepts of elements of value to the attention of participants in this fluctuating and dynamic profession. It is frustrating to have to slow down many of the people I deal with in the industry and educate them on these confusing topics.
Fantastic comment, Lee. Thank you for such a thoughtful and informative response. I agree completely. Well said.
Ryan timely and helpful article for both appraisers and agents. Appraisers-it is our job to know the differences. Agents, ACCURATE reporting saves more deals than it kills.
You can create the same impact by saying “extensively updated and or renovated” as you can by saying “remodeled”, and then pointing out what the updates included in the comments sections.
You can still use phrases like “cream puff” while being accurate in the use of remodeled vs renovated.
Thanks Mike. I appreciate it. I particularly like your first paragraph. It’s so important to communicate well. It looks like you are in SoCal and you appraise some interesting properties. Good for you!
Here I learnt difference between remodeling and renovation. I would like to say that remodeling means a change the structure and renovation means a change in the finish or color. It is usually a much smaller and less time consuming project than a remodel.
As you said cabinets alone could change whole appearance of a kitchen, might be a cost and time saving option for home owners. New cabinets and lights will certainly bring renovated look though.