So you've located the piece of real estate you want to get old in. The community is awesome, the people are great, and the price was ideal. Now like most home home owners in this situation you embark on doing minor upgrades to your piece of real estate. A little paint in a few rooms, maybe some wallpaper, new hard wood in this part of the house, granite in that room, a fixture here a fixture there. At last you are satisfied with your now remodeled piece of real estate.



Time goes by and you decide you would like to take a 2nd mortgage for one reason or another. Now assume you came to the conclusion you could receive a much better interest rate.You tell your mortgage company about all the upgrades in your piece of real estate and how great it looks, etc. etc. Your mortgage company then tells you about how much equity you have to have in your residence and due to your low loan-to-value ratio they might let you cash out some amount of that equity. No matter whether you try and cash-out equity, your problem begins when the mortgage company goes to order an house appraisal. The home appraiser shows up and looks over your piece of real estate and returns to the office to type his report. After reviewing the data he or she realizes there is a problem, your piece of real estate is great . . . TOO great for your location.

Your home has become what appraisers refer to as ?Functionally Obsolescent Due to Super Adequacy?. What this really means is that the renovations you have done to your piece of real estate are superior to the houses in your neighborhood and thus the law of diminishing returns has just booted you in backside hard. None of the houses in your location have been sold for anywhere close to what your piece of real estate SHOULD be sold for and being without appropriate comparable documents to prove your property's value you're stuck. An appraiser will not be able to grant a value to your piece of real estate any higher than the highest sale price in the location. This may not be so bad for some, but for those looking to cash out or with low LTVs this might be a real deal killer.

If you are really concerned then you should consider hiring an real estate appraiser or real estate agent to provide you a consultation. Select a professional that is familiar with your neighborhood because they will know more than anyone how much homes are selling for and what quality these homes are. Look through your neighborhood and take notice of signs in the yards. If you begin to take note of a common agent then that is your best bet for a contact. An real estate appraiser can go one step further and give you a future sales value based on the remodeling you are considering doing to your residence. This should be very helpful if you have purchased a property as an investment.

The moral of the story here is to be sure you are aware of your market area which is normally defined as your immediate and surrounding neighborhoods up to one mile away. Be aware of what properties are going for and the type of construction quality or amenities they posses prior to starting major renovations. If you must be the Jones? and over do it then conscience of the law of diminishing returns.