FHA News & Info

Making improvements to your home can be a great way to increase its value. It all depends on the improvement made and the quality of the improvement. Sometimes you recoup more than you've spent; other times you don't. Just because you've spent more money on an improvement than the market will bear, that doesn't mean that improvement has no value. Value in Use can be defined as The value of a property as used for a specific purpose. A homeowner might want a home movie theater in their basement. They might spend $10,000 more than what the market will pay for this improvement. There is still value to the home owners in this improvement as they will use and enjoy this improvement for as long as they own the home. When the homeowners sell their home, it is highly unlikely the cost of the home theater will be added to the sales price. The years of use and enjoyment is where the value of that improvement lies.

Before you start making improvements to your home, here's another thing to consider. The Theory of Substitution states that the maximum value of a property tends to be set by the cost of purchasing an equally desirable and valuable substitute property, assuming that no costly delay is encountered in making the substitution. This means that no buyer is going to knowingly pay more for something when they can get something similar for less. You could install solid gold faucets in your master bathroom. Mr Jones' house down the street is similar to yours in every way except for the faucets. The typical buyer is not going to pay more for your house than Mr. Jones because of the gold faucets. If you over improve your house, that is make improvements that are above and beyond what is normal for the neighborhood, you will not likely see that money returned to you in the sales price on your home.