Welcome to another installment of Appraisal 101. In this edition we’ll be discussing the term “over-improvement” and highlight some tips you can practice to make sure you don’t make this mistake. This article will be especially relevant to anyone looking to invest money in improving their home. Over-improvement in appraiser speak is known as “super adequacy”.
So what is over-improvement? By definition, an over-improvement is an alteration or improvement that is made to a property where the cost is greater than the market value added to said property. If the improvement you are considering is substantially better than what is typical for the market area, you probably will not add value. In order to understand what constitutes an over-improvement, it’s crucial to understand the market dynamics of the area you are in and in particular, the ceiling. A common mistake people make is over-improving a home and then expecting to be rewarded greatly for their efforts. It is a rare instance where one can go “comp-busting” and set a new peak for the neighborhood… so don’t expect or rely on it.
Understanding market dynamics: Picture a suburban subdivision, 250 cookie cutter homes. The homes were all built by the same developer, are all 2 stories and range from 2,000 to 2,500 square feet. You purchased a home and are considering making some improvements. Here are some tips: