Remodeling specification

That home value determines how much you can borrow from the bank.

A remodeling estimate is required if you plan to remodel and want to have the costs paid for within the mortgage loan. The appraiser will then determine how much the remodel will cost and how it will affect the value of the home and its marketability.

Why a remodeling specification?

An appraiser wants to be able to estimate what the change in value will be if the buyers renovate the home. The appraiser, therefore, wants to understand the planned remodeling work. For example, enlarging a home or installing a dormer increases the home value. The bank wants to know the expected value increase to ensure they are financing a house with more than the fair home value.

What does such a remodeling specification say?

You must fill out a remodeling specification and share it with the appraiser. It is a document where you can indicate for each item what will be done in the home, the budgeted costs, and whether you will do the work yourself (in part) or have a professional company do it for you. While preparing a remodeling specification, you can wait to bring a contractor company on board. However, the latter, or at least a quote, does help with accurately estimating the cost estimate. Estimating costs yourself is more complex, especially when you need to know exactly how you want the remodeling to go and what costs will be involved. This is because you fill out the form when you apply for a mortgage to buy the house. The home is not yet your property, and partly because of this, you may have yet to be able to make fully developed remodeling plans. As a result, the remodeling specification is a rough estimate.

Impact of remodeling specification on the appraisal value

Typically, around 60% - 70% of the estimated remodeling cost is added to the home value. So suppose the house has an appraised value of €550,000 and needs to be completely renovated. The house is 120m2 in size. The renovation costs are determined at €1250/m2. The total cost then comes to a sum of €150,000.

60% of that is €90,000. So that makes the house value after renovation €550,000 + €90,000 is €640,000.

Consequences of construction deposits

The appraised value of a house determines the maximum amount you can borrow from the bank to buy the house. In the case of complete remodeling, you are talking about the home's new value. With most banks, you can apply for a construction deposit after you have met the assessment standards.

If the actual costs exceed €90,000, you will have to pay the exceeding costs from your resources. Therefore it is better to estimate the expenses as relatively too high in your remodeling specification than too low. The higher the remodeling specification, the more you can borrow within certain limits. The appraiser will assess the plan on reasonableness, and should the specification be unreasonable, the bank may have reason to make less money available for the construction deposit.