Renovation specification

A remodeling estimate is required if you plan to remodel and want to have the costs paid for within the mortgage loan

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

Why do you need a renovation 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 is a renovation specification made up of?

You can complete a renovation specification yourself and share it with the appraiser. It is a document where you can indicate each item, the budgeted costs, and whether you will do the work yourself (in part) or have a professional company do it. While preparing a renovation 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 renovation specification is a rough estimate.

Impact of remodeling specification on the appraisal value

Around 60% - 70% of the estimated renovation cost is typically 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 must pay the exceeding costs from your resources. That's why it's better to overestimate the cost when it comes to your renovation specification. The higher the renovation specification, the more you can borrow within certain limits. The appraiser will assess the plan, and in case the specification is deemed unreasonable, the bank may have reason to provide lower funds for the construction deposit.

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