Why fireplaces and decks rarely add much value.
Looking at old appraisals (and appraisals performed by people who have had their license for over 20 years) I'll occasionally see adjustments for decks and fireplaces. Sometimes these adjustments seem... off. Today I want to break down by the cost approach why these amenities rarely add value.
According to CostToBuild.net (one of the best free cost estimators that I've seen) the cost to install a brick, wood burning fireplace is $17,170 (as of 10/18/2022) in a modest home (1000sf home with estimated cost of construction at $206,744 not including the site cost, and with no upgrades above a VERY basic home). This price seems consistent with the very few new construction appraisals that I have seen that include this amenity (more on that later).
For a 12x12 uncovered deck, the cost new on the same house is an additional $6,146. This seems low to anyone who would ask a contractor to come to their home and add the amenity, but remember this is the cost to build new DURING construction, and again is a very basic deck.
So, there we have it, right?! Fireplaces add $17,170 and decks add $6,146... problem solved.
Wait, there's a catch. How old is the fireplace or deck? Are they in good working order. IF the value new of a deck is $6,146, then what is the value of a deck that only has half of its economic life? Let's assume that a deck, left to its own, will remain usable for 15 years, without routine maintenance. Everytime you perform a repair or seal the wood, etc, you get back some of that time. This number is called the economic life as is related to the "effective age." We've all been in a house that is 100 years old but looks like it was updated 20 years ago - we might guestimate the effective age at "20 years" while the actual age is 100. So, again, lets say that the "effective age" of the deck is 7.5 years, therefore 50% of its total economic life is gone. In terms of the cost approach we would subtract half of the cost new to determine the value added - in this hypothetical, we're down to $3,073. This represents the Physical Depreciation.
And then there is Functional Depreciation:
How much value does an amenity add to your home that no one will use? If I say that I'll add an outhouse to your property, properly plumbed into your existing septic system and it will only cost $10,000... how much value would that add?
In the last two years I have performed well over 1000 appraisals. Of all of those appraisals I have seen 1 sale where the subject guaranteed that the fireplace was functional. Why... because the owner in all their years at the property never used or serviced it. In the central Virginia market, homeowners don't use their fireplaces very often, which is why very little new construction includes this. My anecdote above would say that the functional utility of a fireplace is 1/1000, however that seems aggressive. Lets imagine that the typical owner will use their fireplace once per year (far more than the amount that I have evidence for). This shows a functional utility of 1/365. This would mean that a fireplace adds $47.04 per year to the home's value... before the effective age of the fireplace is calculated in.
How many months of the year does your deck get used? Perhaps you LOVE your 12x12 deck! You spend 7 days a week on it in the evenings... but this uncovered deck gets a bit brisk around December to March. However, lets say you're a die-hard, you're on the deck everyday except January and February. That would represent a 17% depreciation. Your 12x12 deck with an effective age of 7.5 years would be worth $2,561... if you survive long enough to sell your home.
In truth, the functional utility of your deck is more accurately about 50% (seasons, weather, etc) and therefore your decks value iEvery times $1,536.50. This is also why pools add so little value in comparison to their cost new.
There is another factor to the cost approach, but it rarely comes into play. Imagine the perfect deck, brand new in the perfect climate. No functional depreciation. No physical depreciation. However, you built your home next to a paper mill... and the fumes waft to your home 7 days a week. This is called External Depreciation... and I hope I never appraise that house.