Most real estate transactions require an appraisal of the property. Getting a home appraisal can feel uneventful, but it's a significant part of the real estate buying, refinancing, selling, and owning process. Understanding the appraisal process is helpful to homeowners, as it can guide them in making improvements that enhance curb appeal or modernize areas like the kitchen.

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Furthermore, you'll want the best home appraisal possible, so understanding the key features that will lower your home appraisal will be helpful. This article aims to help you navigate the often complex landscape of home appraisals and guide every homeowner to make informed decisions.

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What Is a Home Appraisal?

A home appraisal is the professional evaluation of a home's current market value. The goal of an appraisal is to provide an unbiased examination of a property to determine its worth in terms of its current market value. Appraisals are required in the purchase mortgage process as well as the refinancing process. An appraisal will look at the condition and location of a home as well as recent sales of properties similar to your property to determine its fair market value.

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Home appraisals exist primarily for mortgage lenders when they are considering a mortgage loan. Lenders want the reassurance that their borrowers have a realistic market value for their property, which will be used as collateral for the mortgage loan. Lenders also need to protect themselves in situations where their borrowers may default on their mortgage loans.

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‍There are two primary types of home appraisals: a purchase appraisal for a home sale and a refinance appraisal. Both types of appraisals require a professional appraiser to assess the market value of a home or property.

Why Is Appraisal Value Important?

Why is it important to secure a high value on your home appraisal? Chiefly because you want an approved mortgage to cover the total purchase cost of the house or property. For instance, assume you aim to buy a $400,000 home, but the lender’s appraiser values the home for $350,000. You'll either have to pay the difference on the loan or renegotiate the price of the house.

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‍Paying the difference is often impossible for people, and a seller may not budge on their asking price. In these cases, a low appraisal could prevent an individual from buying a home. As a seller or homeowner, you want a high home appraisal so that potential buyers are able to get approved for their mortgage loan amount requested.

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‍If a property gets a low appraisal - and the seller is willing to renegotiate - it may benefit the buyer. If the seller is willing to budge from their price, the home appraisal may be a vital negotiation item. It could be that a seller is over-valuing their home. In that case, a lower home appraisal will help a buyer out. However, this situation would not be ideal for a prospective seller.

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‍For a refinance mortgage loan, you want to be sure that the current value of the property will be sufficient for the refinance mortgage loan amount requested. ‍

Will the Appraiser Enter My Home?

A home appraiser aims to assess the condition and value of your home. To effectively accomplish this goal, the appraiser must see all parts of a home or property. This review, performed by the appraisal, will include the interior and exterior of a home, taking into account aspects like curb appeal, updated kitchens, and other features that can elevate a homeowner's property value. 

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To achieve this end, an appraiser must enter your home, whether it's a single-family residence or a condo; however, the appraisal will be scheduled for when you can be present. If you've made any upgrades to your property, make sure to mention them to the appraiser, as these improvements could positively affect your property's value. Consult with your realtor for guidance on this matter.

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However, this dynamic altered during the COVID-19 pandemic. Due to COVID, lenders had to get creative with how they conducted appraisals. Their alternatives included drive-by appraisals and virtual tours. However, at the time of this article, in-person appraisals are starting to return, and your realtor can help navigate this process.

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Does the Appraiser Work for My Lender?

Many think that appraisers work for the lender issuing the mortgage. Surprisingly, appraisers are a third party to these transactions. The reason appraisers don't work for lenders is to ensure an unbiased valuation of the property. The goal of an appraiser is to provide a fair, honest evaluation of a property or home. If appraisers worked directly for those issuing a mortgage, it may potentially cause a conflict of interest.

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Appraisals for FHA, VA, and other government-backed mortgages follow slightly different rules. Home appraisers in these situations will assess the value of the home but also look for various safety items. For instance, the FHA doesn't offer loans on properties within 100 yards of tanks containing over 1,000 gallons of explosive or flammable materials. They also require homes built before 1979 with lead paints to be treated before offering a loan. 

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These appraisals are slightly different than standard appraisals, but they are worth considering if you’re securing a government-backed mortgage.

Who Pays for the Appraisal?

Often the cost of an appraisal falls on the buyer. This cost is usually included in the closing costs on a home sale or closing costs for a refinance mortgage. Different types of appraisals cost different amounts. Here are some common appraisal types and their corresponding costs:

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Uniform Residential Appraisal Report (URAR) - A URAR is the most common appraisal form used for documenting property values for mortgages. In this type of appraisal, a licensed appraiser will examine the interior and exterior of a home or property. These appraisals take several hours. The cost of the appraisal depends on the area of the country and the type of property. The appraisal is very comprehensive and ends with a detailed report on the property and an estimated market value.

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URAR’s utilize several different approaches to determine market value:

• Market approach – Determines the value based on the selling price of similar properties
• Income approach – Determines the value based on income received as compared to similar income-generating properties
• Cost approach – Estimates the value of a property by determining the cost that will be required for constructing a replacement or reproduction of the same property after deduction for depreciation

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Short-form Report, Restricted-Use, or Drive-by Appraisal - This type of appraisal gives less information and costs less than the standard URAR appraisal. However, most lenders don't accept these types of appraisals for mortgage loans. Often, these types of appraisals may be used by a real estate agent, like your realtor, to help determine the listing price of a property.

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Comparative Market Analysis (CMA) - Real estate agents may use a CMA to help them determine the list price of a home they are selling. A CMA looks at local market conditions, the type and condition of the house, and the features of its local neighborhood or city. A CMA provides an estimate of the house's market value but isn't as in-depth as a URAR. These types of appraisals are used mainly by real estate agents and sellers.

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Online Appraisals - Some websites will offer an online appraisal of your home or property.These appraisals are limited in what they assess but can still be another source of information on the value of a home, whether it's a townhouse or a piece of land. Lenders don't accept these types of appraisals for their mortgage approval process. Still, this could be an additional tool for a real estate broker, agent, or seller.

What Do Appraisers Look For During a Home Appraisal?

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Home Location

A large factor influencing the value of a home is its location. A house close to a good school system, shopping mall, parks, restaurants, and convenient services will have a higher value than other homes. Even information like the congestion of nearby streets, proximity to a body of water, and owner status of nearby homes will affect a home's value. All these factors are considered during a home appraisal, regardless if it's a townhouse or a standalone property on a piece of land.

Home Condition

Assessing the condition of a home is an integral part of the appraisal process. During an appraisal, an appraiser will note things like the materials used to build a home, the condition of general features of the home (doors, windows, walls, etc.), and any structural issues. An appraiser isn't concerned if the property isn't showroom clean, as much as they're looking for signs of severe damage or neglect. Furthermore, they're also on the lookout for any safety issues‍.

Home Size

The square footage is an important feature that appraisers evaluate when determining the final value of your home. Beyond square footage, they also consider the number of bedrooms, bathrooms, and living spaces. Garage size is also another consideration in their total assessment of the home's size. Lastly, they'll examine the size of the home's lot, whether it's a townhouse with a small yard or a larger piece of land. The larger the lot, the higher the home’s value.

What Negatively Impacts a Home Appraisal?

There are certain conditions or features that will consistently negatively impact your home appraisal. If you know these features ahead of time, you can help alleviate their harmful effect.

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If you want to increase the appraised value of your home or property, be on the lookout for the following items:

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Market Conditions

Market conditions will always be one of the leading factors determining the value of your home. Market conditions comprise many factors: how many homes are currently for sale, the time it takes for those homes to sell, mortgage interest rates and loan programs offered by lenders. If the current market conditions are poor, it may be hard to sell one’s house for a favorable price – even if it's in great condition. 

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Being aware of the market conditions in your area will help you navigate when considering purchasing a new home or refinancing your existing mortgage loan.

Aesthetics

The aesthetics of a home are a vital part of the home's total value. Some homes may have outdated exteriors that are no longer desirable. Furthermore, external factors like water damage, cracks, or damaged materials may also negatively affect an appraisal.

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When an appraiser assesses the interior of a home, they don't value cosmetics as much as other factors. The main interior items they examine are the condition of walls, windows, doors, ceilings, appliances, and other interior essentials.

Unique or Rural Homes

Unique or rural homes are often hard to assign value to because there's a lack of comparable sales. Since there are often fewer properties in rural areas, finding similar homes sold recently is challenging. This also applies to properties with significant land or unconventional layouts and features.This dynamic can swing in favor of the buyer or seller depending on true market conditions, including commercial influences and fluctuations in home value.‍

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Furthermore, unique homes fall into a similar pitfall. Since they are unique, it's hard to find comparable house sales. The way appraisers handle this challenging dynamic is by providing possible housing value ranges. These ranges are less precise but still give someone a sense of the value of a property.

Structural or Other Construction Materials

Building practices have improved over time. Certain materials or methodologies that were once thought safe are now considered outdated or dangerous. Some current examples are the use of lead paint and asbestos insulation. Both of these building practices are now regarded as dangerous. If an appraiser notices these or other outdated building practices used in your home, it may lower the appraisal value of the property.

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Another factor appraisers consider is the energy efficiency of a home. Often, older windows and doors are not as energy efficient as their newer models. These windows and doors may be considered outdated by an appraiser and consequently lower a home's appraised value.

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How Can I Prevent a Low Appraisal?

In a home appraisal, there are items you can control but also items you can't control. It's essential to understand what you can alter before an appraisal to secure the best appraised value on your property.

Document Improvements

If you've upgraded part of your home or finished significant improvements, document these changes. Documentation could include before and after pictures, receipts, and timetables. It's important to document the changes you've made so that future appraisers and buyers can rightly measure your added value to the home.

Inspect Your Home

An appraiser is going to inspect all the major appliances and systems in your home. Knowing this, you can prepare by making your own inspection of these systems. If you notice something is broken, or in poor condition, you can make repairs or replacements.

Clean Up Any Messes

Make sure the interior and exterior of your home are in good condition. Clean up any messes you see, update your landscaping, and remove any significant stains. You want your home to be in excellent shape when an appraiser comes to examine it and pictures of your property show the home and property as well maintained.

Research Your Local Housing Market

Investigate the housing market in your area. How are houses with similar features and sizes selling? Do you notice any common features of higher-selling homes? What are reasonable improvements you can make to your home to make it more appealing? Consider both residential and commercial forces that may impact home values.

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Furthermore, it may be a poor time to sell your home. Researching your local housing market will help you know if it's the right time to purchase a new home or refinance your existing mortgage loan.

Bottom Line

The home sale or refinancing process can be intimidating for many people. Furthermore, market conditions are constantly changing, mortgages are complex, and navigating all the ins and outs of closing costs, taxes, and proper documentation can be complicated.

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Amidst all these factors, you can at least have a favorable appraisal. This article has given you some key areas to consider before an appraiser visits your home. Furthermore, understanding what appraisers look for in their inspections may help you strategize future home improvements. Most home improvement projects are an excellent opportunity to add value to your home.‍

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To learn more about what home ownership resources are available to you, reach out to a Wesley Mortgage representative.

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Click Here To Connect With Wesley Mortgage Today And Begin Your Mortgage Journey

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