Now, you have have found the residence you see fit to get old in. The location is great, the neighbors are awesome, and the cost was perfect. Now like most home home owners in this situation you begin doing minor improvements or upgrades to your residence. A little paint on the walls, wallpaper there, new marble in this part of the house, silestone in that room, a fixture here a fixture there. At last you are satisfied with your newly upgraded residence.

A year or so goes by and you decide you would like to refi for whatever reason. Let’s assume you realized you could receive a much better interest rate.You tell your lender about all the renovations in your residence and how awesome it looks, blah blah blah. Your lender goes on to tell you about the large amount of equity you have to have in your home and due to your low LTV they might let you cash out some of that home equity. Regardless of whether you try and cash-out equity, your problem shows up when the lender goes to get an house appraisal. The real estate appraiser shows up and looks over your residence and returns to his office to type his report. After reviewing the data he or she realizes there is a problem, your residence is great . . . Much TOO great for your area.

Your property now becomes what appraisers refer to as “Functionally Obsolescent Due to Super Adequacy”. What this basically means is that the upgrades you have done to your residence are superior to the houses in your area so now you are faced with diminishing returns. None of the homes in your location have sold near as much to what your residence SHOULD be sold for and being without comparable documents proof of your home’s value is impossible. An appraiser is not going to be able to place a value to your residence any higher than the highest sale price in the location. This might not be terrible for some, but for those looking to cash out or with low LTVs this could very well be a deal killer.

If you would like a professional opinion then you might consider contacting an real estate appraiser or real estate broker to supply you a consult. Choose a professional that is familiar with your subdivision because they will know more than anyone how much houses are being purchased for and what condition these houses are. Stroll your subdivision and take notice of signs in the front yards. If you begin to take note of a repeated person then that is your good decision for a contact. An real estate appraiser can go even more in depth and provide you a hypothetical sales value based on the renovations you are thinking of doing to your residence. This should be very helpful if you have bought a home as an investment.

The moral of the story here is to be sure you are aware of your market area which is typically defined as your immediate and surrounding neighborhood and subdivisions up to one mile away. Know what residences are going for and what type of construction quality or amenities they posses before you start major renovations. If you must be Mr. and Mrs. Jones and over do it then be well aware of the law of diminishing returns.