What Is The Appraiser Appraising?
A visit from an appraiser is an inevitable part of selling your home. Even if your buyer is happy to pay what you ask and loves the place, the lender will still require that an objective third party – in the form of a professional appraiser – come through the home to determine its value. Because the appraiser operates independently, his or her opinion will be based purely on the market and the state of your property. But, while you may not be able to sway the final verdict, it is certainly worthwhile to know what an appraiser will look for. The questions that many home owners ask me is “how does the appraiser determine the value of my home”?
The fear of course on the sellers part is that there home is for some reason not going to appraise. Keep in mind folks that a home not appraising is a rarity!
In order for the appraiser to be able to do his or her job in figuring out the value of a property they must understand quite a bit about the construction and maintenance of a home to do a good job. He or she will be looking at a number of different things in order to get an accurate real estate appraisal, including:
Your Home’s Exterior
At its most basic, a home is made up of a foundation, walls and a roof. All three of these play major roles in the functionality and the reliability of a dwelling and the appraiser will pay serious attention to all of them. He or she will be looking for defects in the general construction of the home, as well as for any damage to these components.
A problem with a roof or a foundation can quickly make a home inhabitable, so be aware that the appraiser will focus intensely on these. Remember the appraiser is there to report back to the lender who will be providing the buyer with a mortgage. The primary purpose of the appraisal is to make sure the mortgage holder is not lending money on a property that does not have the necessary equity.
Size of the Property
The size of your lot and the size of your home are both important considerations for the appraiser. People tend to prefer larger homes and larger lots, so you can expect these to come into play when your home is evaluated. The more bedrooms and bathrooms you have, the more you can expect the house to be worth – especially if they are large and accommodating. Home buyers like the opportunity to expand and are more likely to desire a property that will allow this. The square footage of the home will make up a large portion of what goes into figuring out the appraised value of the home.
Condition Of The Interior
Even if the roof, siding and foundation are all in excellent shape, the interior of your home is just as important to the appraiser when assessing value. Things like windows and doors, flooring, walls, plumbing, electrical, kitchen and bathroom are all important parts of a home. The appraiser must know about all of these and be able to tell good from bad, and you can rest assured that he or she will look closely at yours. This is true even down to the appliances your home includes and the light fixtures you have installed.
The value of a home does not stop at its original construction. The appraiser will be very interested at any improvements you have made and the quality of those improvements. A new floor, a renovated bathroom or kitchen, new appliances, or an HVAC system – all of these are considered by the appraiser to determine overall value.
Buyers and lenders love newer appliances and quality renovations because they contribute to the lasting value of the property. A new dishwasher and kitchen renovation may add another 20 years to the life of a kitchen, something that is good for everyone involved. Home improvements will certainly be a factor in how an appraiser determines the value of a home!
Extras and Additions
The extra things that make your home special will also be appraised. A home may be very basic or it may have a number of additions that make it more appealing. Air conditioning in a cooler climate, for instance, may be unusual for the area but fantastic for the homeowner during the few hot months of summer. A swimming pool is another example. If the pool is in good shape and in an area where people are willing to pay for them, it could add to the value of your home.
Even things you might consider basic like insulated windows, fireplaces, a garage or a security system can all add value to your home during the appraisal process. These are all critical elements for what appraisers look for during the home appraisal process.
How Do Appraisers Calculate My Homes Value
How do real estate appraisers determine market value? Now that you understand what appraisers look at during a real estate appraisal you probably want to know how they calculate the actual market value from this information. The way most residential property is evaluated is by following what is known as the comparable sales price approach.
Essentially an appraiser will use market data of most similar homes that have sold within a certain distance of your home over the last six months. Appraisers generally will not use any data longer than six months. The older the data the less accurate it is in determining current real estate values. Ideally the data should be three months or less if possible.
These homes that they are using will be what is considered most similar to your home. So for example if you are selling a ranch home, the comparable sales should be other like ranches, not colonials.
Appraisers will then make adjustments based on the features and characteristics of the other homes. For example, lets say your home has 3 bedrooms and one bath. One of the comparable homes in the neighborhood is very similar in size to your home but has a 4 bedrooms and 2 full baths. The appraiser could use this property as a “comp” but would need to adjust for the fact there was one more bedroom and bath.
As previously mentioned above there are all sorts of adjustments that appraisers can use to determine the value of a home. Location, age, condition, amenities are all part of what goes into determining residential real estate value.
How to Challenge a Low Real Estate Appraisal
Sometimes homeowners are faced with the proposition of a home not appraising for what the buyer is willing to pay for it. If this happens to you there are steps you will need to take in order for your sale to proceed to closing. If you get stuck with a low appraisal the first thing you will want to do is get a copy of the appraisal report and go over it with a fine tooth comb.
There are cases where a home comes in at a value lower than it should because the appraiser has made a clerical error in their report causing the value to follow suite. It could be something as simple as the square footage of your home being off or the appraiser not giving an appropriate value to a superior location that your home resides in.
If there are no errors in the report you should also look at the comparable properties that the appraiser used. Are they truly comparable?
Sometimes they are not because the appraiser does not know the area as well as they should. It became necessary to challenge an appraisal that came in low. I knew there was a pretty good chance the appraisal would get adjusted because there was not only a factual error in the report but also a judgement error when placing a value on the homes location.
If however, both of these things check out a last resort would be to ask the buyer to get another appraisal done. There will be a cost associated with getting a second appraisal so be prepared to put the money up for it.
Keep in mind the buyer may not be cooperative in a situation where the appraisal comes in low. After all many buyers are going to be looking at the appraiser as the professional. Buyers certainly do not want to overpay for a property. You need to keep this in mind as you are going through with the process of challenging the value. As with any other profession however there are good and bad appraisers.
When a buyer will not cooperate after receiving a low real estate appraisal your last resort to keep the sale together would be to reduce your homes sale price to match the appraisal value.
How to Avoid a Low Real Estate Appraisal
Nobody wants to be faced with going though a low appraisal when selling a home. The appraiser may be immune to your opinions on your home and unconcerned with your need to sell for a higher price. However, you can still do a few things to improve your odds of a favorable appraisal.
Are there things you can do to avoid getting stuck with a low appraisal of value of your home? Of course and it starts with paying attention to the condition and presentation of your home!
List Improvements and Extras
The appraiser may be highly trained and have a sharp eye, yet still fail to see certain things. One of the things real estate agents should be doing is making the job of the appraiser easier. Make a list of all the home improvements you have done to the house and any extras you think he or she might want to know about. This will make the appraiser’s work easier to get done and will ensure that nothing is missed in the appraisal.
Some of the things that will be important to an appraiser are major structural or mechanical additions like a new kitchen or bath. If you have upgraded the heating system, replaced the roof or installed new siding these things are worth noting as they will have an impact on the home value.
Clean The Home Up
Make sure your home is uncluttered and clean before the appraiser visits. The appraiser is going off of a lot of information, but he or she is also making judgment calls about what is good or bad about your home. Help those judgments along by presenting a sparkling appearance that is free of junk and anything unsightly. While there are some appraisers who are strictly bean counters don’t think that a home in great showing shape does not make a difference.
Years ago when I got into the real estate business I neglected to tell a seller the importance of having a clean and tidy home. When the appraiser and I arrived at the home there were dishes in the sink, food on the counter, clothes on the floor and beds unmade. The home looked like a disaster area. From that day forward I always remember to make sure I let my seller client know how important appearances can be.
Lets face it there is a psychological aspect when we visit homes. You either feel good or you don’t when you enter a property. You want the real estate appraiser to have great feeling when they leave your home. When they are back at their office creating the appraisal, the last thing you want them thinking about is your mess.
You do not have to be a gardener or landscape professional to clean up the yard, cut the grass, trim the hedges and throw down a layer of mulch in the flowerbeds. You may be thinking to yourself why does this matter? Isn’t the appraiser only concerned with square footage and other more tangible things like bedroom and bath counts? Sure those are really important but don’t think for a minute that an appraiser is not human! The appraiser is going to be taking mental notes of everything. You don’t want your yard to look like Sanford and Son! Making an effort for your yard to look great will pay dividends.
Repair What You Can
Any small issue may be noticed by the appraiser, so do what you can to fix them. Replace the toilet flap so it does not leak and replace the missing board in the fence. Thirty minutes of repair work here or there could make a difference in the ultimate value the appraiser comes up with for your home.
Answer questions honestly and make sure the appraiser has easy access to all areas of your home. The real estate appraisal is something that you want your Realtor to attend. The appraiser more often than not is going to have questions about the property.
A good real estate agent should be there to represent your best interests in the sale! One of the things a Realtor can do that is helpful to a real estate appraiser is to have comparable properties on hand. Your real estate agent can bring the listing sheets to the appraisal and hand them to the appraiser.
Most appraisers will love the fact you are making their job easier for them! A Realtor should never assume the appraiser knows the comparable properties better than they do. Oftentimes the appraiser has not see the comparable properties but the real estate agent has! This can be a big advantage to helping the appraiser do their job correctly.
An appraisal is a big hurdle you need to clear so it only makes sense you will give this step in the home selling process the needed attention it deserves. Knowing how the appraiser determines the value of your home goes a long way in making sure there will be no issues with the home appraising properly.
Real Estate Appraisal Myths
Sometimes in real estate there are certain things that people say and do that somehow become facts in the minds of not only consumers but real estate agents as well. A couple of these are that real estate appraisers take into consideration a home assessed value when figuring out appraised value. Wrong they do not!Assessed value has nothing to do with market value and is just a measuring stick for how much a municipality needs to collect for their tax roles. Realtors unfortunately often times perpetuate this myth in their marketing. “Come take a look at this incredible value under priced a hundred thousand below assessed value”. The assumption the agent would have you believe is that the assessed value is the market value. Sorry guys it isn’t!
As a homeowner these are all the things you should be concerned about trying to navigate your way through the real estate appraisal process. I hope this information has been useful whether you will be selling your home now or in the near future!