What is a “Subject To” appraisal, and how can it save me money?

The “Subject To” appraisal is one that many people do not understand, so I thought I would share with you today a situation in which a “Subject To” appraisal could have saved the homeowner thousands of dollars. A “Subject To” appraisal is one in which the value is based on a what a home will be worth after an improvement has been made. Some may be familiar with this in terms of an investment property where a home is purchased, improvements are made, and then the property is resold.Today however I wanted to discuss the scenario where a homeowner wants to make home improvements but they want to make sure they are not “over improving” their home for the neighborhood.

An over improvement would occur if the amount of money you spent was not recouped if you sold the home, or if you home improvement loan 432 300x199 What is a Subject To appraisal, and how can it save me money?built something that was not typical for the neighborhood or larger than acceptable. Examples that come to mind might be a swimming pool, workshop, or enclosed porch. I am well aware that people can build want they want and it can be invaluable to them, however what I am discussing is how these proposed improvements add value when compared to other properties in the nearby area.

A “Subject To” appraisal would take the proposed improvements and determine what the property would be worth after they are made. Lets say you want to build an in-ground pool and the cost to do this $25,000. The appraisal would consists of determining the value of the home with the pool by comparing it to what other homes with pools have sold for. An appraisal of the proposed improvements might reveal that the home, with a pool, would be worth $150,000.  If the home without the pool was worth $135,000, then the contributory value of the pool would be $15,000, meaning that home buyers within this market area would pay and extra $15,000 for a home with a pool. If you compare the contributory value of the pool at $15,000 against the cost of $25,000 to build it, you will see that a pool would not be a good investment. This is why a “Subject To”  appraisal is so important. By getting the appraisal you could potentially save yourself thousands of dollars. It can help you make a more informed decision. You may find that scaling the pool back to a smaller size, or not getting extra features may put the cost in a more reasonable range where the investment would be more acceptable.

Appraisals are not solely used for mortgage loans such as refinances or purchases. They can be used to make decisions about what type of improvements will bring the most return. Many homeowners these days are choosing to fix up and add to their current home rather than sell and buy another one. A “Subject To” appraisal becomes even more important to them, because they would not want to overbuild only to find out in a couple of years, when they are ready to sell, that their $50,000 investment will only add $25,000 to the value of their home. Do you have any questions about this type of appraisal? Leave me a comment below and I would be glad to answer it for you.

If you have any real estate appraisal related questions you can call me at 205.243.9304, email me, or connect with me on Facebook., Twitter, or Youtube.

 What is a Subject To appraisal, and how can it save me money?

About Tom Horn


Tom lives in the Birmingham, Alabama area with his wife and two children. He has been appraising residential real estate for over 20 years and holds the SRA designation from the Appraisal Institute. He concentrates in the area of single family, vacant land, 2-4 family, and condominium appraisals.

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