How to Build Equity in Your Home

April 7, 2020 by
Updated on April 7th, 2020
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Building home equity is one of the many financial benefits to homeownership, but sometimes it’s hard to know where to start. Increasing your property value through renovations or home additions, and paying off your mortgage, seem like the most straightforward ways to build equity. But there are also some factors that determine what your house is worth that are out of your control, like the location and popularity of the particular housing market. We gathered tips from experts in the field to share what they find to be the most effective ways to build equity in your home.  

Spending money on important updates

Thinking about putting in a gazebo? A saltwater pool? Custom features may not always contribute to value, because they may not be widely accepted by your market.  Spend your money where every homebuyer looks, the kitchen, bathroom, roof, and repairs. The more you stray from the norm the less likely you’ll see a return on your investment.  Spurgeon Appraisals

Your first priority, if you have been putting off, should be superstructure & mechanicals like the roof, HVAC system, electrical and plumbing. What’s more, a proper appraisal will identify and should apply the costs associated with these upgrades in the appraisal of the home. A new kitchen is great, but if the roof leaks or you can’t heat it, you’re going to have some unhappy home buyers. –Alex Argianas, Argianas and Associates

Avoid DIY projects

Don’t do it yourself, EVER, unless you have the serious patience and skills of a craftsman. Poorly done improvements lower a home’s quality and value, however, good quality materials expertly installed add to value. In addition, get the free Cost vs. Value report tracking 21 popular improvements and monitoring the value retained at resale. (Spoiler Alert. Only one returns more than 100%) -Adam Wiener, Aladdin Appraisal

Kitchen and Bathroom

If you want to build equity in your home to increase the value, the pat answer is almost always updating kitchens and bathrooms or add square footage. Just updating is not necessarily maximizing the potential. It is also important to make sure that the updates are current to today’s demands and expectations of the market. One way to see what is most current is to go tour the model homes in new developments for ideas. –Master Appraisal Services

The one thing on a financial lending appraisal report and only one thing regarding upgrades is a box on page 1 of the report.  This box asks the appraiser to indicate if the kitchen and/or bathrooms have been updated within the prior 15 years. Once this box is checked “yes” the Appraiser now has told the Reader of the report this home is updated.  Now when the Appraiser compares this home (the subject of the appraisal) to other recently sold homes they will need to analyze how this updated kitchen and/or bathrooms have impacted the overall value of the home. –Sun Point Appraisals Inc.

Building a relationship with a real estate appraiser

Build a strong relationship with a local real estate appraiser. They should obtain an appraisal every few years to keep current with their home value and property expectations for their market. An appraiser can advise them on trends and characteristics important in their micro-market and the cost-to-value relationship of improvements remodels or upgrades being considered. This way homeowners spend their money on improvements that will maximize returns and are steered away from potential over-improvements. –Gynell Vestal, Consumer Home Value

Knowing your market

One way to help gain equity is to help sell your neighbor’s home. As an agent, I have run into scenarios where neighbors are not very accommodating when it comes to the sale of their neighbor’s home. They take down directional arrows, they steal yard signs and leave cars parked in the street. If you’re directly next to the home for sale, clean up your backyard. I have had a few sales where the property had trouble selling because the neighboring backyard was in disarray. As an appraiser, we are looking for comparable sales to form our value opinions. If your neighbor’s home sold low, likey when you go to refinance, we are going to use that sale as a comparable for determining value. So if you see your neighbor trying to sell their home, help them out. Spread the word, be accommodating and help the real estate agent.  –Appraisal Partners

Home improvements can add equity to your home, however, we recommend checking with a local market expert to find out which improvements are showing the best return on investment in your area.  Not all markets are the same. Kitchen remodels may add greater value in some markets where outdoor living spaces will add more value in another market. Check with a local real estate appraiser. –DW Slater Company

Equity is in residential real estate is typically built by identifying items that the current market reflects.  In the day and age of real estate television shows, Pinterest, and social media, one can visibly see what trends are current with fashion and styling.  Updating components of your home to reflect popular culture is the best way to build equity in your property. Components such as roof, HVAC system, and water heater are considered short-lived items; meaning, their economic life span is shorter than that of the real estate. Always remember that cost is what you pay but value is what you get. –Brian Kirkpatrick, DFW Appraisals

This might sound strange, but one of the best ways to build equity is to do absolutely nothing. During an increasing market, a homeowner has an incredible opportunity to sit back and build wealth by simply riding the wave of growth. In fact, many owners have done this over the past eight years and they have hundreds of thousands of dollars in equity without having lifted a finger. Yes, kitchen remodels and other improvements can surely make a big difference for a home’s value, but what the market is doing can actually mean way more. –Ryan Lundquist, Sacramento Appraisal Blog

Start by understanding what is happening in your market for the type of property you have. Let’s take a 2-flat in Chicago’s Logan Square for example from a real estate appraiser’s perspective.  If you were to automatically remodel the kitchens and bathrooms in both units in a very short time you’d find yourself having questions as to the value. Most 2-flats in Chicago’s Logan Square are not being fully remodeled, rather the 1st-floor unit is being duplexed with the basement and that is being fully remodeled to current tastes and the 2nd-floor unit is being spruced up with paint and minor updates. –John Tsiaousis, Chicagoland Appraisals

Typically, the amount people spend in finishing a basement will only yield about half as much in equity. So it’s not a good idea to finish one if you expect to get immediate equity back out if they sell or get a loan. It is better to do it for the use of the area, and wait for the market to increase to get your money back out. –Matthew Frentheway, Aspen Appraisal Group

Lowering taxes through tax appeal

While it’s important to increase the energy efficiency of the home which will improve comfort and lower utility bills, the market doesn’t react to these critical factors that they don’t see, like they should. One thing homeowners can do which may not necessarily increase the equity in the home on a refinance, but lowering your taxes through tax appeal can increase the purchasing power of a potential buyer and thus increase buyers’ bids to purchase the property…..and that is extra equity for the homeowner. –American Realty Appraisals

Adding extra space

Design trends come and go, but a great way to add long-lasting value is by adding an accessory dwelling unit. The extra living space and potential income will continue to add value for as long as you own the property. Just Appraisals

If you have a walk-up attic with a high enough ceiling height, a fairly simple way to add equity is by finishing and heating that area. It’s a fairly simple way of adding gross living area and it’s much less expensive than most traditional additions. If a person wants to do so, I recommend checking with their municipality to make sure that it is legal to do so and that the area can be considered gross living area when completed. But this is a relatively easy way to add equity. -Jamie Owen, Aspen Appraisal Services

A good way to build equity in your home is to see if your house is being used at its highest and best use. Being able to add additional square footage to your home to maximize your floor to area ratio allows you to use larger home sales when an appraisal is done on your home, which in turn will add more equity to your home versus its original smaller footprint. –OlaesSmith Appraisals

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Lexi is part of the content marketing team and enjoys writing about real estate and design trends. Her dream home would be a contemporary home with an open floor plan, lots of windows, and a waterfront view.

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