By Brad Litz
Real Estate Broker, Appraiser & Investor
Here in our neck of the woods we are lucky to enjoy all the things people look for in a community, so the popular choice is often to add on to your house. There are several schools of thought on how to go about making the changes, but I wanted to address a prudent way of doing so, that way if you do have to move at some point then you can avoid being upside down on your house.
The first step would be to consult with a builder or architect, with whichever you are most comfortable. Set forth the guidelines for the contractor as far as what you are looking for in the addition, everything from how many bedrooms you want to add to the level of finish you would prefer. In my experience, it is best to let the builder or architect know a ‘ball park’ budget so that you don’t go overboard before you have even started construction. After you have a satisfactory new floor plan, get bids from your contractor(s).
Finally, get an independent appraisal to establish the home’s value after you have completed the addition. Submit your plans and specs to the appraiser and ask them for an ‘as is’ value and an ‘as complete’ value. This appraisal will let you know whether or not you should scale back on your addition or if you are nicely situated under your homes value after the work has been done. An appraisal should cost anywhere between $250 and $500 depending on the scope of the work to be completed.
I am often asked what items are most important to the appraisal and that can vary from house to house, but, basically, the items that add the most value would be the number of bedrooms, number of bathrooms, kitchen and bath updates and the overall finish level of your house as compared to others in the neighborhood. If the status quo is 4 bedrooms, 2.5 baths and upper end finishes, then try to stay close to those parameters because you can definitely under- or over-improve your home. That opens a whole new chapter in appraisal, which I am happy to share in a future article.
So answering my own question, should you add on or move…if it costs more for the addition than it would to sell and purchase a home with your desired features, then it may be more prudent to move. If you want to stay where you are, then do so, but be conscious of the value after the addition is complete so that you have equity left in your home.