Does Adding New Bedrooms To Existing SQ FT Raise Appraisal Value?

Question

Do appraisers make adjustments for converting existing square footage into additional bedrooms?

We're converting a storage closet into a 3/4 bathroom and turning a sunroom and nook into 2 additional bedrooms.

The appraiser says the extra bathroom will add value to the appraisal but he won't add value for the 2 new bedrooms because he compares houses of equal square footage and not by the number of bedrooms.

Is this method the industry standard or do appraisers in other cities make adjustments for additional bedrooms?

Benjamin Aaker · Answer

Agree with @Malcomb Stapel. In my area, the appraiser will compare like-properties based on bedrooms/bathrooms before looking at square footage. I can also see where the value of adding a totally new bedroom with the square footage would be more than taking area from another room and converting it into a bedroom.

The key is in the comparables in the hyper-local area. If your as-rehabbed property has a similar number of beds/baths, your move should increase the value. If it puts you above the market - say you now have 5 bedrooms when other houses have 3, the added value won't be as much. In that case, the appraiser will fall back on square footage. That might have been what happened. You'll need to find comps (again, hyper-local) that show you are right in your valuation and politely present them to your appraiser and banker.

Garrett Bowser · Answer

Thank you @Malcolm Stapel and @Benjamin Aaker for your feedback.

It's my understanding that an appraiser should look for comps with the similar square footage and the same amount of bedrooms and bathrooms. If the square footage of the comps are the same but the number of bedrooms and bathrooms are different than they should make a value adjustment to compensate for the differences.

I'm still learning the ropes but I was studying for the real estate agent test in Mississippi and that adjustment method I mentioned above is how my online course says an appraisal should be done when the comps vary slightly from the property being evaluated. So, I was surprised that an appraiser in Mississippi would suggest otherwise.

The appraisal is scheduled in a couple weeks but we'll definitely speak with our lender beforehand. Thanks for the advice. Have a great day!

Malcomb Stapel · Answer

@Garrett Bowser that sounds bogus to me. At least where I'm from, an extra bedroom means you get comped up to that level, if they can find comps in the area. So if you go from 3/1 to 4/1.5, they should be trying to find a 4/1.5 to comp it against.

Maybe he is saying that it already counted as finished sq footage and so he won't add any extra value for it? If it wasn't finished sq footage before, it definitely will be when you put bedrooms in it. You might run this situation past your lender.