Buying a home is an exciting time and the process can be a rollercoaster of emotions, especially for first-timers. Becoming homeowners is a giant milestone in adulthood and will, most likely, be the biggest purchase of their lives. However, sometimes the process doesn’t quite work out as planned and the pieces necessary don’t fall into place. One of the most common roadblocks encountered by wannabe homeowners is the appraisal process. There are a lot of contributing factors that can ultimately determine the outcome of an appraisal and if you’re new to the process, you may find yourself asking, “How do home appraisals work?” Let’s take a closer look at what exactly goes into a home valuation.
What is a home appraisal?
A home appraisal is an expert, third-party opinion of a home’s value based on a variety of criteria to ensure the lender of the mortgage that the loan is being well-spent or at least within reason of the asking price. This protects the bank (and buyer) from getting stuck with a home that is worth less than what is invested. Receiving a favorable home appraisal is crucial for securing the financial means necessary to purchase the home.
There are two types of home appraisal methods for residential properties; sales comparison and cost approach. Each has differences and the one that is used depends on the age of the property.
- Sales Comparison– this method compares three or four similar homes that have sold in the area to the home being appraised. Also, a variety of factors are taken into account like lot size, square footage and so on.
- Cost Approach– typically used for newer properties, this method is based on reproduction costs to replicate the home.
Who does the appraisal?
A home appraiser is a licensed professional that provides a trained, expert opinion of the value of real estate. They must go through required training, apprenticeships and exams in order to be qualified to provide accurate valuations of residential homes.
What factors matter?
- Location/lot size
- Structural construction materials and updates
- Curb appeal
- # of bedrooms/bathrooms
- Square footage
- Current market
What should I fix?
Home appraisals are often conducted in $500 increments, so you should conduct any repairs that cost over $500. Broken windows, leaky faucets, broken trim. Any renovations that make your home appear newer can be extremely beneficial. New flooring, fixtures and amenities can go a long way for adding value.
What is included in the final report?
- Explanation of determined value
- Size and condition of the home, including improvements
- Serious structural problems noted (if any)
- Description of surrounding area
- Evaluation of recent market trends
- Comparative market analysis that supports the appraisal value
- Maps and photos to support the above factors
Unfortunately, there isn’t much you can do if you are unhappy with the appraisal. The regimented process requires appraisers to follow strict guidelines set by lenders in order to protect the lenders and benefit buyers by preventing appraisal fraud.
However, there are some tips that can help prevent receiving a low home appraisal. One lower than expected home appraisal can unravel a seemingly solid deal. Even after a buyer and seller agree on a realistic price, if the appraisal comes in lower than the value, the burden ends up falling on the buyer to make up the difference.
In these unfortunate situations, the deal will fall apart. Home appraisals take into account many criteria and with these tips a beneficial home appraisal is achievable.
When the number of comparable area homes sales declines, there is less data to appraise accurately. As sales numbers fall, and foreclosures and short sales rise, appraisal values can have wide spreads and be lower than expected. You are now likely wondering what you can do to increase your chances of a beneficial appraisal. These tips for home appraisal will assist you in the process:
- Request that you would like an appraiser from your specific county (or neighboring county). They will have more relevant experience with homes in your area and increase the chances of appraising a value you’ll be happy with.
- Second, request that your appraiser have a residential appraiser certification and also a professional designation.
- Although you cannot meet with your lender, you may speak with your appraiser and this is advised. While they inspect the home, talk with them about the recent short sales and foreclosures you are aware of which will help the numbers.
- Before you list your home, get an appraisal. Use the Appraisal Institute website to search for a certified and experienced appraiser.
- Take into account the appraisal value when deciding on a listing price.
- Send the buyer’s appraiser a copy of the pre-listing appraisal.
- If a low appraisal does come through, don’t hesitate to speak up. It is possible or the appraiser to take into consideration new information.
Many people wonder how to get a good home appraisal. These pieces of advice will help accomplish this goal but do not underestimate the benefit of an experienced real estate agent. When it comes to the Phoenix housing market and customer satisfaction, Jeff Barchi is second to none. Contact him today to begin the process whether you are buying or selling.