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Recently, a reader asked us a question about betterments and home value. What is a betterment and how does it differ from normal improvements to a home or property? I’m more than happy to answer.
Simply put, if it makes your property more valuable (or better), it’s a betterment. Painting your home isn’t a betterment because it sustains your home’s value but doesn’t increase it. But a new addition to your home does increase its value, which makes it a betterment. Make sense?
There are two kinds of betterments: public betterments (or projects by a government that raise the value of your home) and private betterments (home improvements that raise your home’s value). This is important because property owners often have little or no say in public betterments, but both can have an impact on your tax bill.
Public betterments are public projects that could raise the value of your home. Here are some examples of common public betterments:
- New roads (but not the repaving of old roads)
- New parks close to a property
- City water and sewerage added (to a property with a well and/or septic system)
- New neighborhood school
- Upgrading of sidewalks
Here’s one thing to keep in mind: Public betterments often come with a property tax increase. Public betterments increase the value of your property, therefore you are taxed accordingly.
I thought the City of Boston had some great, easy-to-understand information about how public betterments affect your tax bill:
Whenever part of a community benefits from a public improvement, or betterment (e.g., water, sewer, sidewalks, etc.), special property taxes may be assessed to the property owners of that area to reimburse the governmental entity for all, or part, of the costs it incurred in completing the project. Each property parcel receiving the benefit is assessed a proportionate share of the cost which may be paid in full, or apportioned over a period of up to 20 years.
Getting in touch with your assessor’s office is recommended if you disagree with any tax increases or if you’re curious how a currently-planned betterment will affect your future taxes.
Next, let’s discuss private betterments. When it comes to private betterments, often the value increase would be apparent if the home is sold or appraised for a refinance. Some capital improvements raise the value of a home and some don’t (or raise it very little).
To get a perspective on betterments as they relate to property value, I checked with Mike Broker, a regional leader at TSI Appraisals, for his opinion. Here’s what he had to say:
It’s important to note that just because a new kitchen may cost $30,000, it may not increase the value of the home by $30,000. Also, items like replacing a roof or new furnace will increase the marketability of a home, but the increase in value is minimal if you are replacing with like materials. For example, if you replace a composite shingle roof with new composite shingles, your increase in value is very minimal because all homes are expected to have a roof.
Mike also gave me a great list of common improvements and how they affect your property value. Here are some improvements that typically increase your property value:
- Remodeling your kitchen
- Remodeling your bathroom
Here are some improvements that typically have a moderate return on investment:
- Installing new flooring such as tile and hardwoods (but not carpet)
- Installing new patios and decking in outdoor spaces
- Finishing a basement
These items have a minimal return on investment:
- Adding new paint (including custom murals)
- Installing a swimming pool
You should note that these are general rules, and “the items may vary according to your location,” says Mike.
When you’re improving your property, you should also consider what’s expected in your local market. Here’s what Mike had to say on the matter: “If custom-made Italian cabinetry isn’t the norm for the market, don’t spend the money on it if you expect to get a return on investment. There is such a thing as over-improving your home.”
I doubt I’ll ever have to worry about over-improving my home.
Do you have any home improvements/betterments that raised your home’s value or taxes? We’d love to hear about them. Tell your story in the comment section below!