Home Appraisal

Home appraisals are a crucial part of the home buying process. They provide mortgage lenders with information regarding the value of a home. Because a mortgage is a secured loan where the home is used as collateral, the home must be valued at the loan amount or higher.

This means that if the agreed sale price is higher than the appraised value of the home, a buyer may not be able to secure financing as originally planned.

While home appraisals are a vital part of the process, though, they are not always understood. 

If you are a seller who wants to protect the value of your home and help ensure you can get as much as possible from a sale, read on to see what you should check before listing your home.

If you are a buyer and wondering if the home you are thinking about buying will appraise for the asking value, read on to see which factors are the most important when it comes to home value.

What is a Home Appraisal?

A home appraisal is the process of assessing the value of a home based on comparisons with other similar homes and an inspection of the home. A home appraisal is required when a buyer is securing financing rather than paying cash for a home. Home appraisals are also common when a homeowner chooses to refinance their mortgage.

Home appraisals are used to determine how much a mortgage company is willing to lend. For example, if you have put in an offer on a home that is $800,000 and want a mortgage to help cover the costs, then the home’s value must appraise for at least $800,000. Otherwise, the mortgage company will not lend you the money because the home will not be enough collateral to secure the loan.

Who Does a Home Appraisal?

Once a seller has accepted an offer, the buyer’s mortgage company will contract with a third party to complete a home appraisal. The appraiser is independent, despite being hired by the lender, and is tasked with being objective in order to identify the value of the home. The home appraisal is paid for by the buyer, and the cost of the appraisal can be included in the closing costs.

What Does a Home Appraiser Look At?

In addition to checking comparable properties in the area, a home appraiser also looks at the following items:

  • The year the home was built
  • Its total square footage
  • Whether it has a good foundation
  • How many stories it has
  • How many bedrooms and bathrooms it has
  • Roofing materials
  • Floor and wall materials
  • Parking types: off-street, driveway or garage
  • Age and condition of appliances
  • The type of neighborhood (rural, urban or suburban)
  • The current housing market (generally within a particular time frame)

The appraiser will be looking for items that need to be fixed and which could negatively impact the value of a home as well as upgrades that positively affect the value of a home. So if you know you need a new roof, it is a good idea to get it before you list your home.

Two Things That Can Affect Your Home Appraisal

Outdated Systems and Appliances

HVACs, water heaters, and other home systems can impact your appraisal negatively if they are broken or old. The seller’s disclosure should note any problems that have already been identified, however, unknown issues may come to light during the inspection or appraisal process.

If you are looking to buy, make sure to tour the property with an eagle eye and check on the systems to ensure they are in working order. Keep in mind anything that needs to be repaired or replaced when making an offer.

If you want to sell your property, consider having routine maintenance done on your systems and appliances to ensure they are working well. You can note the maintenance on your seller’s disclosure to help set a potential buyer’s mind at ease.

Materials That Are No Longer Up to Code

Construction standards change with time. If you are looking at older homes or are trying to sell an older home, there is a chance that some of the materials used when building the home are now considered substandard. Keep this in mind when putting in an offer or setting an asking price. 

If you know you have older materials in your home and are able to have them replaced, consider whether it is worthwhile. Not all home improvements impact your appraisal. Check with your Realtor to see whether you should have any work done before listing.

For Buyers: What Can I Do If A Home Appraises for Less Than My Offer?

If you want to purchase a home that has appraised for less than your offer, you can still secure a mortgage as long as you are willing to cover the difference between the home’s appraised value and your submitted offer. You can also attempt to renegotiate the sale, though this is at the seller’s discretion. If they are not willing to accept less than the original offer, then the deal may be off.

For Sellers: My Buyer Dropped Out Because of Home Appraisal. Now What?

If your sale falls through because your home did not appraise well, you can work to increase the value of your home by fixing the issues mentioned during your inspection and appraisal. If you do not want to do this, you can relist your home at the appraised value or look for all-cash offers that will not require a home appraisal. 

Need more information on home appraisal or other real estate matters? Contact me—I would love to help you sell or buy your next home!