If you can tell it’s a DIY job, that’s probably a bad thing. Let’s talk about what happens when we spot a lack of quality in home improvements.
1) Technically remodeled: A home might technically be “remodeled”, but if the work is low in quality it probably won’t compete with other truly remodeled homes. This is where photos can be deceptive because a home can look incredible online because lipstick was put on a pig so to speak, but when you see something in person it can make all the difference. On a side note, if you are selling a house and know a potential comp down the street had some quality issues, there is nothing wrong with letting the appraiser know about that so the appraiser can follow-up.
2) A closer look: When something looks off in a house, it’s like an invitation to start looking at other details more closely. I recall a high-end flip where the front door was not installed correctly. In my mind it was such a bad move because it was the very first thing anybody noticed, and as an appraiser it certainly caused me to question the quality of the rest of the work. I ended up looking more closely, observing some repairs that were needed, and I made the value in the report subject to some of the details being properly finished.
3) DIY: I’m all about doing it yourself, but if you can tell it’s a DIY job, that means there is a quality issue. You never want someone to think, “It’s so obvious someone who was not a contractor did this.” The danger is we think we can remodel anything after a few YouTube videos and binge-watching HGTV. Maybe we can, but let’s remember some things are better left to the professionals.
4) Value issue: The market knows how to sniff out a lack of quality, which means if a house has too many issues it’s likely buyers will pay less or even pass. On the appraisal side of things when I see a shoddy install of floors throughout a house, I have to take that into consideration in the final value. I probably won’t give some sort of floor adjustment, but if quality is clearly low and I’m convinced it means something to the market, I can always look at a reasonable range of value for the house and choose to bring in the value a little lower in this range.
5) Cost-to-cure: At times when I see a lack of quality in improvements I tally up a list of what it will cost to cure any issues. My sense is buyers do this when making a purchase, so it’s prudent for me to do it also as an appraiser (I’d rely on a contractor bid for the big stuff). For example, on a recent appraisal I tallied items that were standing out such as a shoddy deck that needed removal, doors that needed to be re-painted, baseboards and moulding that needed caulking, and kitchen floor that needed replacing. Buyers can be forgiving with a couple minor issues here and there, but when things really start to add up they’ll probably pay less. In this case I was noticing projects that were not finished, not done well, or needed to be removed altogether, and I had to consider the cost to make these things right. In photos this house would look amazing, but when walking through the details were off, and that’s exactly why it didn’t make sense for the value to be reconciled to the very top of the market. In this case the home needed about 15K in work to fine tune some of the details, and I had to take that into consideration in my appraisal.
I hope this was interesting or helpful.
THINK LIKE AN APPRAISER CLASS: I’m doing my favorite class at SAR tomorrow called “How to think like an appraiser“. It’s from 9-12pm on June 1st. We’ll talk about comps, adjustments, value, etc… It’ll be fun. You’re invited.
Questions: Any stories to share about a lack of quality? What point stands out to you the most? I’d love to hear your take.
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On the “flip” side 😉 do appraisers take in to account a quality home? If an ’80s home has beautiful wood details and real hardwood flooring, but does not necessarily look updated, does quality count for something?
Great question Katherine. I’m so glad you asked because I only addressed the other side of things (bad quality).
I think quality can matter for value and make a positive difference – especially in the case where something is really custom. Yet we have to look to the market for answers though. What are buyers paying more for? Are buyers paying the same amount for the quality of 80s home compared to today’s lower-quality remodeled ones? The proof is in the market, so we have to dive deep into the comps rather than bring in our assumptions about what the market should and shouldn’t do.
Quality is definitely something appraisers have to consider, and it’s usually something buyers are willing to pay more for too. But I couldn’t assume something that is higher quality but outdated will go for more than today’s properties too. I think it would be equally dangerous to automatically say this property belongs with all the other cosmetic fixers too because the market might put the home into a different category.
A few things:
1) Buyers are sometimes distracted by bling. So if buyers are paying more for properties that have a few shiny features rather than something older and so-called better, then that’s what the market is like. We might not agree with it, but it is what it is.
2) Old quality in Craftsman homes is a huge deal and it’s just not even really possible in today’s market to replicate. So in that regard old era charm / quality is huge for value.
3) Sometimes I see properties that are totally outdated, and the seller says, “This is 2×6 construction.” That’s definitely a step up from 2×4, and it’s a higher quality, but I’m not convinced the market always recognizes details like this unless there is something else about the house that feels different.
Thoughts?
Hi Ryan! I enjoyed your post. I appreciate your mentioning that it is the market that determines what adds value and what does not when it comes to quality. Sometimes it’s logical. Sometimes it doesn’t seem to be. You explained this situation very well. Thank you!
Thanks Jamie. Well said. It is the market that gives value. Appraisers are there to reflect the market. If we could invent value, I’d be really rich. I wish I had that ability… 🙂
I agree with all that you said Ryan. To add to the discussion, one area of interest I have is in quality that is not easily sniffed out by buyers, but is the future of construction. I am interested in home performance and if the home was built to higher standards than code making it more comfortable, more efficient, more durable, and more healthy. Was air sealing done during construction to make sure that the air we breath in the house comes from vents and has not been pulled through damp and dirty walls, crawlspaces, and attics? Was the insulation installed properly to make sure there are no air gaps in walls, minimal thermal bridges, and to make sure that warm moist air in the house does not condense in a cool wall cavity? Is the home ventilated correctly? Are the mechanical systems sealed from the breathable air in the house? These are areas of quality that are being addressed in about 50% of the Portland, OR new home market and are starting to be highlighted in the marketing of existing homes through required performance testing.
Thanks Gary. This is next level thinking and you’re doing a great job staying on top of your market. If I’m not mistaken Portland has a required energy score now for each house? Or maybe a required HERS rating when selling? This is definitely a dynamic that everyone else is watching in the country. I would imagine as ratings get out there, buyers could begin to assign value or at the least consider if it’s something worth paying for. Being that California legislature just passed a law stating solar will now be required on new construction in 2020, we are on a similar wavelength. While it’s not always easy to embrace change, there are simply going to be different metrics in the future that buyers will consider or at least watch during the purchase process.