OK, you've have spotted the property you would like to become old in. The view is awesome, the neighbors are great, and the price was perfect. Now as with the average property owners in this position you begin doing small renovations to your property. A little paint in a few rooms, maybe some wallpaper, new tile in this room, silestone in that room, a fixture here a fixture there. At last you are pleased with your now renovated property.



Time goes by and you decide you wish to refinance for one reason or another. Let's assume you came to the conclusion you could get a lower interest rate.You begin to tell your mortgage company about all the improvements in your property and how great it looks, blah blah blah. Your mortgage company tells you about how much equity you have to have in your property and because of your low loan to value ratio they could let you cash-out some amount of that equity. Regardless of whether you attempt to cash-out equity, your trouble begins when the mortgage company goes to get an house appraisal. The home appraiser goes and reviews your property and heads back to the office to develop his report. After reviewing the data he or she realizes there is a problem, your property is huge . . . Much TOO great for your area.

Your property has become what appraisers refer to as ?Functionally Obsolescent Due to Super Adequacy?. What this actually means is that the changes you've made to your property are superior to the homes in your neighborhood so now you are faced with diminishing returns. No houses in your area have been sold for anywhere close to what your property SHOULD be worth and being without comparable sales data to prove your piece of real estate's value you're stuck. An appraiser will not be able to give a value to your property any higher than the highest sale price in the area. This may not be so bad for some, but for people looking to cash out or with low LTVs this could very well be a real deal killer.

If this terribly concerns you then you may consider contacting an home appraiser or real estate salesperson to offer you a consult. Select an individual that is familiar with your market area because they will know more than anyone how much homes are being sold for and what quality these homes are. Browse your market area and locate sale signs in the front yards. If you begin to write down a common agent then that is a good choice for a contact. An home appraiser can go beyond that and give you a ?subject to? selling value based on the changes you are interested in doing to your house. This can be very helpful if you have bought a estate as an investment.

The lesson here is to always know your market area which is typically defined as your immediate neighborhoods up to one mile from your home. Be aware of what properties sale for and the type of construction quality or amenities they have prior to starting major renovations. If you must be Mr. and Mrs. Jones and over do it then conscience of the law of diminishing returns.