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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About Betterment
As a homeowner, you would always look to increase the value of your property by making some significant improvements.
There are multiple ways to increase the value of your home; however, not every home improvement increases the property value. In this post, we will understand what is a betterment in real estate in detail.
What Is A Betterment In Real Estate?
Betterment refers to improvements that increase the value of an asset or make it “better”. In real estate terminology, betterment is an improvement to an asset or surrounding infrastructure that adds value to the asset.
There is an important difference between betterment and general repair and maintenance.
For example, fixing a roof or painting the home is not considered betterment because it simply maintains the property’s original value.
Whereas, adding a new garage or a new bedroom is considered betterment because it will increase the value of the property significantly.
Below mentioned is another example:
Betterment: Adding a 2nd bathroom to a property that had only one previously.
General maintenance: Replacing the plumbing system with a new one.
How Does A Betterment Affect Property Sale?
Now that we understand what is a betterment, let’s know-how will it affect your property sale. How the improvement affects your home will depend on how you finance the betterment.
Self-financing is different from taking out a loan for improvements. But the principle remains the same.
The financial cost of the improvement is reduced by the amount you have to pay to finance it. Improvements can be a lien on the property.
That means you have debt on that property. This can affect the sale of your home because you will have to pay for home improvements before selling the property.
All liens must be removed from the property. Otherwise, there is a limit to what the homeowner can do.
For example, if the contractor has established a lien against the property. They are usually removed after the contractor receives the payment for the work.
What Are The Types Of Betterments?
There are two types of betterments in general. These are public improvements (or government projects that increase the value of a home) and private improvements (home improvements that increase the value of a home).
This is important because property owners have little or no say in public improvements, but both can affect their property tax bills.
1 - Public Betterment:
Public betterment is a community project that increases the value of your home. Here are some examples of common improvements:
- Adding a new road (but not repairing the old road).
- Adding a new park close to the house
- Connection to city water and sewer (in homes with wells and/or septic tanks)
- Adding a new district school
- pavement upgrade
There is one thing to remember. Improvements in government are often accompanied by higher property taxes. Public improvements increase
the value of the real estate and hence are taxed accordingly. The City of Boston provides excellent and clear information about the impact of public improvements on your tax bills.
When a person is part of a community that benefits from public betterments or improvements (for example, pavements upgrade, parks, new roads), the properties in the community would be levied with additional property taxes.
Each parcel of subsidized property is assessed pro rata and the cost of betterment can be paid in full or divided for up to 20 years.
If you disagree with a tax increase or want to know how currently, planned improvements will affect future taxes, we recommend contacting the Assessor’s Office.
2 - Personal Betterment:
When it comes to personal betterment, a home’s value often increases when you sell it or appraise it for a refinance. Some major improvements add significant value to the home, while others do not or are minimal.
It’s important to remember that a new bedroom priced at $50,000 may not increase the value of your home by $50,000.
Items like roof replacement and furnace replacement increase a home’s marketability, but if replaced with similar materials, the increase in value will be minimal.
For example, replacing an old composite shingle with a new composite shingle is of little value because every house must have a roof.
Below is an excellent list of common improvements and how those improvements affect asset values. Here are some improvements that generally add value to properties:
- Bathroom upgrade.
- Kitchen upgrade.
Some upgrades that typically result in a lower return on investment include:
- Construction of new terraces and decks in outdoor spaces.
- Basement upgrade.
- Installing new flooring such as hardwood and tile (except carpet).
The elements with the lowest return on investment are:
- Swimming Pool Installation
- Add new paint (including custom murals)
Conclusion
Betterment could be one of the best ways to increase your property value. However, it is important to note that the amount that you spend for the improvements may not necessarily be equal to the appraised property value.
Some betterments may give you a significant boost in the property value and some might not.
Speak to a professional before you decide to do an improvement, their advice may help you to maximize your betterment benefit.
