What You Need to Know | David S.

Bunton
Now that spring is here, many homeowners are looking to begin their next home remodeling project.
Whether you're redoing the patio or finally putting in that new pool, you should remember that the
value added from renovations differs widely based on a number of factors. The Appraisal Foundation
has compiled some important tips to ensure your remodeling projects maximize your appraisal.
1. Cost does not always equal value.
First and foremost, homeowners should remember that appraisers do not simply add the cost of
renovations to the value of a home. Instead, appraisers determine how much buyers are willing to
pay for specific renovations in a marketplace, which often varies greatly depending on location.
Homeowners considering renovations can research "cost vs. value" data by checking sources such as
Remodeling Magazine. According to the magazine, some of the most common renovations that
return the most on the investment are new front entry doors, midrange kitchen remodels, and
bathroom remodels.
2. Remember the principle of substitution.
When evaluating renovations, appraisers rely on the "Principle of Substitution," which essentially
says that buyers would pay no more for a special feature in a home than the cost of renovating a
similar property. Imagine that "Home A" and "Home B" are identical, except that "Home A" has had
its kitchen remodeled at a cost of $50,000. Let's assume that a similar kitchen remodel in a similar
home can be performed for only $25,000. The Principle of Substitution says that the owner of "Home
A" would not be able to recoup the full $50,000 paid for the kitchen remodel. Typical buyers
desirous of a home with a remodeled kitchen would simply purchase "Home B" and renovate the
kitchen themselves, saving $25,000 in the process. Of course appraisers also consider the value
buyers might find in not having to go through the hassle of doing the renovation themselves.
3. Energy conservation features can increase the value of a home.
Appraisers take into account energy-efficient features (high-efficiency windows, solar water heaters,
photovoltaic solar systems, etc.) However, the value of these improvements is based on what the
market is willing to pay -- which differs depending on the community. Homeowners can hire an
appraiser beforehand to get a better sense of how much value a particular energy-saving renovation
will add to their home.
4. Location is key.
The value added due to renovations depends on geographic region. For instance, a new in-ground
pool will most likely add more value to a home in a warm-weather climate, where residents can take
advantage of it year-round, rather than a cold-weather climate.
5. Maintenance can be as important as renovations.
An appraiser often takes into account the maintenance of a home including recent heating or air
conditioning inspections, septic system servicing, roof inspections, and other types of inspections.
6. Keep your house tidy.

While a home's tidiness/neatness isn't officially evaluated in an appraisal, clean houses generally
leave people -- including appraisers -- with a more positive impression. In addition, uncluttered
homes make it easier for appraisers to perform a proper inspection, and may suggest that the
homeowner performs regular maintenance on the home.
7. Keep your records.
It is important that you keep records of all inspections, additions, conversions, or other structural or
significant work performed on your home, so that an appraiser can easily review it.
8. Don't be afraid to communicate with your appraiser.
While homeowners are not permitted to unduly influence an appraiser, sharing relevant information
about renovations to your home is absolutely appropriate. In fact, a competent and ethical appraiser
will welcome information that makes his or her job easier, and leads to a more credible opinion of
value.
We hope that these tips will help guide you through your next home renovation. Before committing
to any project, remember that the value added to your home is based primarily on what the market
is willing to pay. Keeping this in mind, along with the other tips we've shared, could help you
increase your appraisal and ensure that you don't spend money on renovations that don't increase
the value of your home.
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Avg. listing price: $1,230,880

Median household income: $110,929
Pct. households $200,000+ income: 30.3%
As of 2010, the median income of households in San Carlos was more than double the U.S. median of
$51,914. Over 30% of households in San Carlos earned more than $200,000 per year, more than five
times the national rate of 5.4%. San Carlos is one of the most expensive housing markets in the San
Francisco metropolitan area. Over a twelve month period, ending in October, it had the nation's
highest median home price per square foot at $473 among all homes listed, according to Trulia. In
San Francisco, the median age of home inventory was just 45 days as of the third quarter of 2012,
according to Realtor.com, lower than in all but seven markets.
Read more at 24/7 Wall St.

Avg. listing price: $1,232,167

Median household income: $74,489
Pct. households $200,000+ income: 18.7%

Carmel-by-the-Sea, a small coastal city in California, is well-known for its former mayor, actor Clint
Eastwood. Currently, the average four-bedroom, two-bathroom home in the city lists for more than
four times the nationwide average listing price of $292,152. With nearly 19% of households earning
more than $200,000 in 2010, many families and individuals in the small town can afford expensive
properties. One house, despite being not much larger than 2,000 square feet, is currently listed for
nearly $4.5 million.
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Avg. listing price: $1,238,208

Median household income: $91,082
Pct. households $200,000+ income: 14.7%
Kailua is one of just two cities on this list not located in California. The O'ahu Island city is 12 miles
northeast of Honolulu, which had a vacancy rate of 2.7% -- better than most areas but considerably
worse than the other areas on the list. As of October, the median price per square foot for a home in
the Honolulu area was $398, more than in any other metro except for San Francisco. According to
Trulia, a 0.75 acres plot of land, which includes 128 feet of beachfront, is currently for sale for $16
million in Kailua.
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Avg. listing price: $1,312,250

Median household income: $146,069
Pct. households $200,000+ income: 53.0%
The average listing price for a four-bedroom home in Rye is more than $1,300,000, or more-than $1
million above the U.S. average. Employees in the often high-paying finance and insurance industries
accounted for a 27.8% of employed population in Rye in 2010, well above the 7% average rate
nationwide. As of 2010, 53% of households earned more than $200,000 annually, more than any
other expensive city, and nearly 10 times the national rate of 5.4%. Additionally, just 1.3% of
households lived below the poverty line versus 13.8% nationwide. Among the properties available for
sale are a five-bedroom, 7,446 square feet waterfront home for $12.9 million and a 34.2 acre plot of
land for $19 million.
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Avg. listing price: $1,444,214

Median household income: $120,971

Pct. households $200,000+ income: 37.5%

Los Gatos is one of several cities near San Jose on this list. Like these cities, Los Gatos likely benefits
from the overall boom in the San Jose real estate market, which currently has the lowest vacancy
rate of all metro areas surveyed by Trulia at just 1%. Currently, a number of unique properties are
available in the city, including an 11,000 square feet property with an eight stall horse barn and a
garage that fits 12 cars listed at slightly under $13 million. Also for sale is the former home of Apple
Inc.'s co-founder Steve Wozniack. It is currently listed for $4.5 million.
Read more at 24/7 Wall St.

Avg. listing price: $1,495,364

Median household income: $120,670
Pct. households $200,000+ income: 39.3%
In Palo Alto, 48.7% of adults have a graduate or professional degree -- well more than four times the
national rate of 10.3%. The city's proximity to Stanford University, one of the top universities in the
nation, may be partly the reason behind the city's highly educated population. Among the companies
headquartered in the city are Hewlett-Packard and Tesla Motors. The city is a large employer of
highly skilled employees, as 25.3% of its workers are employed in professional, scientific and
management occupations, well above the 10.4% of workers nationwide. Perhaps the most famous
resident of Palo Alto is Facebook founder Mark Zuckerberg, who
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Avg. listing price: $1,506,909

Median household income: $107,860
Pct. households $200,000+ income: 34.9%
Menlo Park is one of just four cities where the average listing price for a four-bedroom home
exceeds $1.5 million. As of 2010, the median income in the city was slightly below $108,000.
However, the recent Facebook IPO has been a windfall to the area. In June, real estate listing service
Zillow reported that the "proportion of million-dollar listings" in Menlo Park -- where Facebook is
headquartered -- rose by 87% between the company's IPO filing and its first day as a public
company. Among the houses available in Menlo Park are a five-bedroom home with a gym, theater
area and wine cellar, which is listed for $4.6 million, and a six-bedroom 5,200 square feet home
that's listed for slightly under $5 million.
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Avg. listing price: $1,582,434

Median household income: $145,023

Pct. households $200,000+ income: 43.1%
Though home prices in the nearby San Jose metro area fell by 25.1% peak-to-trough, Saratoga is yet
another example of how the Silicon Valley housing market has recovered. Currently, the median
price per square foot for homes in San Jose is $337, according to Trulia, more than all housing
markets except San Francisco and Honolulu. Prices for many homes in the area have skyrocketed,
according to listings on Zillow. A home currently listed for nearly $10 million last sold for just over
$2.1 million in 2000, while a home listed for $14.9 million last sold in 1994 for just over $1 million.
As of 2010, 43.1% of Saratoga households earned more than $200,000 per year, while 40.9% of
adult residents had a graduate degree, versus 10.3% nationwide.
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Avg. listing price: $1,658,000

Median household income: $107,007
Pct. households $200,000+ income: 37.6%
Outside of Northern California, Newport Beach is the most expensive city to buy a home. Home
prices are so high in the city that in 2009 legendary bond investor Bill Gross bought a nine-bedroom,
11,000 square feet home for $23 million -- and then tore it down. In 2011, Gross listed the empty
plot of land for $26.5 million. Orange County as a whole has a vacancy rate of just 1.5%, among the
ten lowest in the nation. Despite a 32.7% drop in home prices from peak to trough during the
recession, Orange County's median price per square foot is $265. This trails only the Honolulu, New
York, San Francisco and San Jose metro areas.
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Avg. listing price: $1,706,688

Median household income: $149,964
Pct. households $200,000+ income: 43.6%
In Los Altos, the average four-bedroom, two-bathroom home lists for nearly $50,000 more than any
other city in the nation. According to Coldwell Banker, for that price a buyer could purchase 28
similar homes in Redford, Mich., the nation's cheapest housing market. In Redford, the average
home lists for just $60,490. Currently, asking prices in the San Jose metro area have risen 12.7%
year-over-year, according to Trulia. This is more than nearly every other metro area in the country.
Read more at 24/7 Wall St.