What Do Appraisers Look For? A Comprehensive Guide to Loan Appraisals
An appraisal is an essential part of the process. Whether you’re a buyer, seller, or investor, understanding what appraisers look for during a home appraisal can help you prepare and ensure the process goes smoothly. Mortgage lenders, real estate agents, and buyers alike rely on accurate appraisal reports to determine the value of a property and make informed decisions.
It is important to note that cash buyers such as “540 Home Buyers” do not contract appraisers, as there is no need. The offer is between the seller and the cash buyer. We offer, and you accept. It’s quicker, and the consideration is cut and dried. This article introduces you to the appraisal process if it becomes necessary in a traditional transaction.
What is a Home Appraisal?
A home appraisal is an unbiased assessment of a property’s value, typically conducted by a professional appraiser. This physical appraisal determines the property’s worth and plays a crucial role in real estate transactions. It helps lenders decide how much to approve for a loan, while buyers and sellers use it to gauge market value. The appraisal report analyzes the property, considering factors like condition, size, location, etc.
The Importance of the Home Appraisal Value
The appraisal value of a home is crucial for both buyers and lenders. It helps buyers ensure they are paying a fair price for the property and assists lenders in determining the appropriate loan amount. A property appraisal protects the lender by ensuring the property is worth the investment and ensures the buyer doesn’t overpay. Sometimes, if the appraisal value is lower than the agreed-upon price, it can lead to renegotiation or even a deal falling through.
What Do Appraisers Look For?
- Property Condition
Appraisers check the property’s condition, including the foundation, roof, plumbing, and electrical systems. Needed repairs or updates can lower the value and condition of in-ground swimming pools. - Comparable Sales (Comps)
Appraisers use sale prices of similar properties (“comps”) in the area to determine a fair market value, focusing on homes of size, age, and condition.
- Location and Neighborhood
The property’s location affects its appraised value. Proximity to schools, parks, shops, and public transportation can impact value, as can the neighborhood’s desirability and potential future developments.
- Size and Layout
Appraisers assess the property’s size, including square footage, living spaces, and structures like garages or basements. They also consider the number of bedrooms, bathrooms, and layout to meet market expectations.
- Upgrades and Renovations
Recent renovations, like a modern kitchen or new flooring, can boost the appraisal, but appraisers will also consider if the upgrades are typical for the neighborhood.
- Curb Appeal
Curb appeal matters! Appraisers assess the home’s exterior, landscaping, and driveway. A well-maintained yard can increase value, while neglect may decrease it.
Why Appraisals Matter for Your Loan
Mortgage lenders require an appraisal to confirm that the property is worth the amount you’re borrowing. If it’s lower than the loan amount, the lender may refuse to approve it or require the buyer to make up the difference with a larger down payment. You might need to renegotiate the terms or find a different property in this case.
On the other hand, if the appraisal comes in higher than the agreed-upon price, it can work in your favor, as it may give you instant equity in the property.
What Hurts a Home Appraisal?
Several factors can negatively impact a home appraisal, including:
Poor Property Condition:
If the home has significant structural issues, outdated systems (like plumbing or electrical), or visible damage, the appraiser may lower the home’s value.
Location Issues:
Homes in less desirable areas, higher crime rates, lower-quality schools, or proximity to undesirable businesses (like factories) can lower the appraisal value.
Inconsistent Updates:
While upgrades like a new kitchen or bathroom can add value, they don’t contribute to a higher appraisal if they are out of place for the neighborhood or don’t match the rest of the home’s style.
Overpricing:
If the home is listed at a price that exceeds the fair market value based on comps and other factors, the appraiser may mark it lower, which can affect the deal.
Deferred Maintenance:
Minor issues, such as peeling paint, broken windows, or overgrown landscaping, can give the impression that the property has not been well maintained.
Tips for a Successful Home Appraisal
To ensure a successful appraisal, homeowners should focus on:
Making Necessary Repairs:
Fixing minor issues like leaky faucets, cracked tiles, or damaged drywall can make a big difference.
Enhancing Curb Appeal:
Landscaping, painting, and cleaning up the yard can create a positive first impression and increase the home’s value.
Provide Documentation:
If you recently upgraded, provide the appraiser with a list of improvements and receipts to show the work done.
Access to All Areas:
Ensure the appraiser has easy access to all parts of the home, including attics, basements, and any outbuildings. These areas can add to the appraised value.
What to Do if an Appraisal Comes in Low
- Negotiate with the SellerIf you’re buying, the seller may agree to lower the price to match the appraised value.
- Increase the Down Payment If the appraisal is low and the lender is unwilling to approve the loan, you can make up the difference with a larger down payment.
- Challenge the Appraisal If you believe the appraisal was inaccurate, you can ask for a review or a second appraisal, especially if there are errors in the comparables or if you have evidence that the property is worth more.
- Walk Away Sometimes, it’s best to walk away from the deal, particularly if you’re uncomfortable with the appraised value or renegotiation doesn’t work out.
Factors That Can Affect A Home Appraisal
- Seasonality Homes may appraise higher in certain seasons, particularly when the market is hot. For example, homes tend to appraise higher in spring and summer due to better curb appeal and more competition.
- Interest Rates Fluctuations in interest rates can impact the demand for homes.
- Environmental Factors Proximity to natural hazards like flood zones, earthquakes, or other environmental risks can negatively impact the appraised value.
- Local Market Trends The current state of the local housing market, including supply and demand, can influence appraisal outcomes.
FHA and USDA Appraisal Process
- FHA Appraisals FHA loans require appraisers to ensure the home meets health and safety standards. This includes checking for mold, water damage, or structural issues. The home must be livable and free of significant hazards, which is critical for the appraisal company and the lender.
- USDA Appraisals USDA loans have similar standards, but consider whether the property is in an eligible rural area. The home must be in good condition, and appraisers often check for features like a reliable water source and proper sanitation.
