Home Appraisal

If you are considering selling your home, refinancing your mortgage, or applying for a mortgage to buy a home, a home appraisal will be a part of that process. It is important to know the value of a home before making any financial decisions whether you are a seller, owner or buyer. Additionally, you need to understand how home appraisals work so you know what is expected of you and what you can anticipate after the process is complete.

What is a Home Appraisal?

A home appraisal is a process that is used to determine the fair market value of a home. It is done by an unbiased real estate appraisal and is used in any home transactions, including buying and selling, as well as during refinancing.

Home appraisals are also crucial when putting together an appraisal contingency. This contingency allows the buyer to walk away if the appraised amount is lower than the amount the seller is asking for.

In some instances, a buyer might opt to make up the difference or ask the seller to lower their asking price to the appraised value. If either of these fails to happen with a contingency in place, then the buyer can lean on the appraisal contingency to get them out of the deal.

An appraisal is also used in cash transactions to ensure the price the seller is asking for is in line with the home’s condition, features and location. If the buyer is using financing, the lender can use the appraisal to ensure they are not lending the buyer more money than they need to purchase the home and that the home is worth it.

A home bought using financing also acts as its security. If the buyer for some reason defaults on their loan, the lender does not want to be left with a home that is worth much less than they lent the buyer.

What Happens During a Home Appraisal?

An appraiser looks at everything that contributes to the value of the home, including any additions, upgrades and modifications you have done. They will typically walk around inside and outside the home, taking photographs and notes.

During the pandemic, people became wary of strangers coming into their homes. For this reason, lenders started accepting different types of appraisals.

One of these is a hybrid appraisal. This includes an in-person visit plus a virtual one. The appraiser uses photographs from a home inspection or a listing to view the property. They might also hire a local professional to gather additional details such as the current state of the home, measurements and specific features.

Another type of appraisal now accepted by lenders is a desktop appraisal. Here, the appraiser uses various sources including floor plans, real estate comps and public records to determine the home’s value.  Because the appraiser does not have to leave the home, desktop appraisals have a shorter wait time and thus have become very popular.

Once the appraiser completes collecting all the information they need, they use it to calculate a reasonable estimate for the home’s value. They also look at the value of comparable homes in your area. Using all this information, they will prepare an appraisal report that includes the appraised value.

How Much Does a Home Appraisal Cost?

The cost of home appraisals can vary wildly depending on the size and type of home, its location as well as the type of appraisal done. The most expensive option is where the appraiser visits the home, with desktop appraisals being the cheapest and hybrid valuations sitting between them.

The person or party looking to purchase the home or refinance it typically pays the appraisal costs. These costs are seen as part of the closing costs of the loan used to buy or refinance the property.

What Do Appraisers Look For?

Appraisers will look at several factors, including the size and condition of the home. Size is generally easy to understand because they will note the number of different types of rooms in the house and their measurements.

The home’s condition includes the materials used and any factors that might affect its liveability. The appraiser will also scan the home to see if it is structurally sound and safe. They will then look at the general upkeep of the home. Maintenance-related issues such as leaking taps, missing door handles or a back garden that has not been attended to will catch their eye.

Another critical factor is the home’s location. Homes in desirable locations such as Central London will typically have a higher appraisal value than those in other areas. The location is important because, if you are selling a home in Central London, the appraiser will compare it to other homes sold in the same area to determine its value.

The appraiser will also look at the home’s age. There are pros and cons to buying a new home, with the biggest problem with older homes being their designs. Older homes that have not been updated in a while typically have a low appraisal and attract a limited number of buyers.

If you have done any home improvements, the appraiser will take note of those too. Eco-friendly and energy-efficient upgrades and modifications are a huge plus as are outdoor additions such as a patio, porch, or outdoor kitchen.

Other things they will look at that will affect the appraisal include:

• Signs of water damage
• Infestations
• Safety features

What Can Affect a Home Appraisal Negatively?

Some factors can affect the home appraisal negatively. One of these is outdated interiors, appliances and systems.

Updating systems and major appliances like electrical, plumbing and air conditioning units can be expensive. If you have not upgraded them for some time, they will affect the home’s value. Also, outdated interiors are not appealing to buyers, and they will affect the appraisal.

The systems above can also indicate that the home might not have been maintained and taken care of properly, leading to a lower valuation.

Another factor is construction and structural materials. Construction has changed over the decades, with new technologies, methods and materials allowing contractors to make homes stronger, safer and more energy efficient.

Some older homes were constructed using dated materials that have been proven to be hazardous. These include lead paint and asbestos insulation and roofing tiles. If these materials have not been removed, the home may be deemed unsafe and thus have a lower valuation. Remember that the new homeowner will have to remove these materials, which can be costly.

An outdated home might also not be energy efficient. This is especially true for homes that still use their original doors and windows. Outdated roofing and siding will also negatively affect the appraisal.

Home Appraisal Tips for Buyers

Home appraisals impact a home’s selling price and the mortgage amount you can get. An appraisal that doesn’t match the proposed price could lead to complications with the purchase and mortgage.

Consider Your Offer Carefully

One way to protect yourself against such issues is to think carefully about your offer. A hot market that leads to higher demand and a perceived lower supply of houses often causes buyers to make offers that are much higher than the asking price.

If you make such an offer and the appraisal values the home much lower than the asking price, you could be forced to negotiate the difference between the appraisal value (what a lender is willing to give you) and how much you have to pay for the home. This is unless you have an appraisal contingency as discussed above.

To avoid this issue, keep an eye on and understand the market. Also, working with an experienced real estate agent who understands the area and housing market will help you avoid such issues.

Appeal the Appraisal

In case you think the appraisal made an error, usually valuing the home higher than you expected, you may appeal the process. Some grounds for such an appeal include the comparable properties being far away from the one you are looking to buy or the appraiser not noting some details correctly.

Understand that this process does not always result in a positive outcome, and you need a solid standing to even start that process.

Home Appraisal Tips for Sellers

For sellers, you want to ensure that the appraisal is comparable to the market value of comparable homes and that it is not too low. Either of these things could be problematic, especially for those looking to sell so they can buy another home.

Providing an offer list to your lender can show them that the home has a much higher value than they appraised. This works well when you have several cash offers higher than the appraised value.

Another important tip is being present for the appraiser. By doing so, you are in a better position to show improvements and upgrades that could lead to a better appraisal.

Appraisals are crucial for everyone involved in buying or selling a home. It helps buyers know they are not overpaying for a home, and sellers to know they are pricing the home competitively. Lenders also use appraisals to know they are lending the right amount that coincides with the home’s value.

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