So you have have seen the home you would like to grow old in. The location is good, the neighbors are great, and the asking price was ideal. Now as with many house owners in this position you begin doing minor improvements or upgrades to your home. A little paint in a few rooms, maybe some wallpaper, new hard wood in this room, corian in that room, a ceiling fan here a fixture there. Finally you are pleased with your now redesigned home.



Some time passes you by and you decide you wish to refinance for some reason. Let's assume you decided you could receive a better interest rate.You tell your lender about all the upgrades in your home and how great it looks, blah blah blah. Your lender then tells you about the large amount of equity you must have in your residence and as a result of your low loan-to-value ratio they might be able to let you cash-out some amount of that home equity. Regardless of whether you try and cash-out equity, your issue comes when the lender tries to get an appraisal. The home appraiser shows up and looks over your home and returns to his office to type up his report. After looking over the data he see that there is a problem, your home is huge . . . TOO great for your location.

Your property has become what appraisers would call ?Functionally Obsolescent Due to Super Adequacy?. What this actually means is that the upgrades you've done to your home are superior to the houses in your community so now you are faced with diminishing returns. None of the homes in your area have been sold for near as much to what your home SHOULD be sold for and lacking comparable sales data to prove your property's value you're stuck. An appraiser is not going to be able to grant a value to your home any higher than the highest sale price in the area. This might not be terrible for some, but for those looking to cash out or with low LTVs this might be a real deal breaker.

If you are concerned about this then you might consider contacting an appraiser or real estate salesperson to offer you a consult. Select a professional that is familiar with your area because they will know more than anyone how much homes are being sold for and what grade these homes are. Stroll your area and look at the for signs in the front of houses. If you begin to notice a common person then that is a good call for a contact. An appraiser can go even more in depth and give you a future sales amount based on the remodeling you are considering doing to your property. This will be incredibly helpful if you have purchased a house as an investment.

The point here is to be sure you are aware of your market area which is usually defined as your immediate neighborhood and subdivisions up to 1 mile away. Be aware of what properties sale for and the type of construction quality or amenities they have before you start big time renovations. If you must be the Jones? and over do it then be well aware of the law of diminishing returns.