Appraisal House Blog

Maintenance vs. Improvement
April 18th, 2008 10:03 AM

When setting up an appointment, I always try to talk to the homeowner (or listing agent, borrower, or whomever) to get a better understanding about the house.  One of the comments I usually get is about all of the "updates" they have done.  However, what people don't understand is that there is a difference between an "update" and "maintenance".  Here are some rough definitions/examples of the terms appraisers tend to hear:

Update - replacing your shag carpet and fuzzy wallpaper with more conventional coverings (typical Home Depot carpet and textured/painted drywall)
Upgrade or Improvement - Replacing your construction-grade living room carpet with hardwood floors is an "upgrade".
For simplicity, we will consider "updates", "upgrades", and "improvements" to be interchangeable for this article.

An improvement is something that you have that your neighbor, who has a pretty similar house, does not have.  For example, if you have replaced the laminate kitchen counters with granite, that is an "update".  If you had just burned the laminate with a hot pan, or chipped the edges from typical use, and then replaced it with new laminate, that is "maintenance".

Your roof, siding, water heater, air condition, heater, dishwasher, oven, microwave, etc. all have a limited life span.  When the water heater dies and you replace it, you are doing maintenance, not upgrading the property.  If you put in a high-efficiency tankless heater, that would be an upgrade.  If your original Whirpool dishwasher dies and you get another $250 one from Home Depot, that is maintenance; if you buy a Bosch for $800, that is an upgrade.

Think about it this way:  What does a buyer expect to have when they buy a house?  One big thing is a roof.  So if you just put on a new roof in the past month, that might be worth some minor additional value, because the buyer has some assurance that he has one less long-term expense to worry about.  But if you did it three years ago, it likely has no additional value.  Roofs are meant to last around 20 years, so at some point a 10 year old roof and a 3 year old roof have no discernable difference in terms of market value.  If your roof is 30 years old and failing, then that would be something that an inspector or appraiser would likely note on a report and would need to be fixed prior to a sale.  Similarly, a buyer expects to have a working HVAC system.  If you have a 10 year old 10 SEER system (SEER is the rating system for AC units) system that works fine, would you change it out to a 12 new 12 SEER unit?  Not likely, right?  So just because your 10 SEER unit died and you replaced it with a 12 SEER doesn't mean you increased the value of your property.

So just keep in mind that fixing things that need to be fixed and replacing things that need to be replaced is just "maintenance", and does not necessarily increase the value of your house.  It will make your house more marketable and appealing to buyers, and will usually make your house sell faster, but it doesn't always add value. 
However, adding some "upgrades such as hardwood or ceramic tile floors in place of carpet and sheet vinyl will add value.   Understanding the difference will help you price your house correctly and hopefully sell it faster. 

Posted in:General
Posted by Mike Lay (Austin Area) on April 18th, 2008 10:03 AMPost a Comment

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