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FEATURE SERVICING scammed. I've seen this escalate to the degree that the borrower wants his or her money for the appraisal refunded, in addition to feeling entitled to the new mort- gage, because the appraiser clearly had no clue as to how much money was put into the upgrades. The reality is that the ap- praiser does know about the upgrades and did factor them in but again, when it comes to valuing properties, one plus one doesn't necessarily add up to two. Sometimes, upgrades simply don't matter as much as you think they would. Renovations are typically done for two reasons: either to bring the home up to the current standard of living requirements or to fulfill the homeowner's particular tastes—neither of which adds value in and of itself. The homeowner who has an older home with an older kitchen and decides to spend $40,000 renovat- ing the kitchen and then wants the house to be worth $40,000 more is simply not realistic. The reality is that the kitchen needed to be replaced in order to keep up with the current standard. Prior to renovation, the home simply was not worth what other homes with renovated kitchens or amenities in the market area were worth. If your refrigerator is olive green, your dishwasher isn't elec- tronic, and your countertops are tile, when the majority of your neighbors have travertine floors, matching stainless appliances, and granite countertops, it's nearly impossible for you to recoup the costs of upgrading to the "new normal." Nothing Means Everything, Everything Means Something T hey key to remember is that when it comes to valuing properties, generally speaking, nothing means everything. That said, everything means something. No, this isn't some New Age platitude. It simply means that yes, upgrades like new decks, kitchens, patios, siding doors, and bathrooms add value to a home. Of course they do. But will they enable a home that's in a $500,000 neighborhood to sell for $600,000? No. Thou shalt not live on renovations alone. If homeowners are looking to add value, they should only make renovations or modifications that put them in line with the neighborhood. If they're mak- ing changes that position them at the very top of the market, it's highly unlikely they'll see as good a return on that investment. So if homes sell for $400,000 to $500,000 in the market area, your house should be in the $470,000 range. Aim for the home to be "nice" but not "too nice," which will put you at risk of overspend- ing and becoming an "over- improvement" for the market area. This happens fairly frequently in subdivisions where every house is basically the same. Homeowners who renovate their homes in order to have the "crown jewel" of the neighborhood, soon come to realize that their homes—while now the best in the neighbor- hood—can't be sold because there are no comparables. They either have to discount the home's price so the property will "comp out" for financing or find a cash buyer that can cover the additional costs needed to accommodate the lack of financing available for that particular property. The single most important factor in real estate is the neigh- borhood. Borrowers need to be educated that the only way they would be able to get a home priced outside of their neighbor- hoods would be to actually physi- cally move the house out of the neighborhood. There's a reason that people say the top three factors to consider when purchas- ing a home as an investment are location, location, location. While a man's home may be his castle, when it comes value, home- owners need to understand that they're not merely buying a home, castle or otherwise. More accurately, they're buying into a neighborhood and, for the most part, the home just happens to be there. 54 | THE M REPORT SECONDARY MARKET ANALYTICS SERVICING ORIGINATION