What goes in to the home appraisal process, and how can you determine home value? Understanding the valuation of a home is incredibly important for all parties – from buyers to sellers to current homeowners. Read below for a home appraisal checklist to learn about the steps appraisers take for a home valuation and which appraisal factors come into consideration during the process.
What is a Home Appraisal?
Home appraisals are valuations of a home’s worth estimated by a fair and impartial state-licensed professional. These appraisals are used to determine the fair-market value of a home, mostly used by mortgage lenders to set the proper loan amount for new mortgages or refinancing. Home valuations are also helpful for buyers and sellers alike to ensure the contract price is appropriate considering all contributing factors such as condition of the home, neighborhood appeal, and comparable recent sales in the area.
While very similar to a home inspection in nature, home appraisals have the main focus of determining home value instead of simply identifying house features and issues.
Considered Factors in a Home Appraisal
When a home appraiser visits a home, they are looking for factors directly tied to the home. Features such as furniture do not play into the valuation of the home, but permanent features such as light fixtures and hardware do. Home appraisers inspect the details such as age, appliances, code violations, cracks, damages, doors, floors, foundation, landscaping, leaks, lighting, lot size, plumbing, roofing, square footage, walls, and windows. Other features home appraisers look at for a home valuation are:
Square footage of the home
Size of the property lot
Selling price of similar homes
Quality of natural light in the home
Overall condition of the home
Number of fireplaces
Location of the home
Improvements and renovations
Finishing details in the home
Condition of the basement
Addition of a swimming pool
The Importance of Comps for Home Appraisals
A large piece in a home valuation from an appraisal is the selling price of similar homes in the area. Those homes, known as comparables or comps, give the appraiser a baseline value for the house being appraised. Features such as size, number of bedrooms and bathrooms, and location are important features that impact an appraisal, and enhancements such as cosmetic upgrades serve as secondary factors that enhance a home’s valuation.
Comps are incredibly important when knowing how to determine home value. To get this information, the appraiser will research 5-10 recently sold properties in the same area with comparable features such as size, number of bedrooms, and location. These comps are then analyzed to note similarities and differences with the home being appraised to estimate how the home is likely to be valued. If the appraised home has 4 bedrooms compared to a recently sold home in the area with 3 bedrooms, the appraised home will receive a higher value estimate for the additional feature.
Using a tool such as an automated valuation model (AVM) for home valuations in the area is an easy and efficient way for home appraisers to obtain this information for determining comps. A home value AVM allows appraisers to easily compare home values within one, simple tool. The Home Junction home valuation tool shares details about properties such as number of bedrooms and bathrooms and provides comparison charts for factors such as size, price, price per square foot, and age of the property. While a home valuation tool provides only an estimate, it is a great tool to include in the home appraisal process when figuring out how to determine home value against comps.
After an appraiser has taken all inspected home features into account and has evaluated how the property compares to local comps, they will calculate an estimated value of the home.
Home Appraisal Checklist
Of course, having a higher-valued home is the ideal outcome when it comes to appraisals. There are a few ways to increase the likelihood of a positive home appraisal. If you or a client are at the stage of needing a home appraisal, follow this home appraisal checklist to ensure the house makes the right impression and is valued appropriately.
You can do an in-depth analysis of the home’s value by finding out the cost in recent home sales in the area. Look in to comparable property sales, research trends in the market and city, and do an economic analysis of the region through job statistics, major employers, affordability and market forecasts. This research will help determine what to expect from home valuation based on its appeal in the market, and help define a better baseline for comparisons.
Document the Changes Made
Write a comprehensive list of all the improvements made to the home that details as far back as possible. Give the file to the home appraiser as evidence of the maintenance, improvements, and renovations made as it may help increase the home’s value. This can include anything from a central air system installed 10 years ago, to new flooring and countertops just recently updated in the kitchen. Any upgrades that improve quality of living can make a large impact on value.
Improve the Home’s Exterior
Since the exterior is the first thing everyone sets their eyes on, try to keep it as appealing as possible. Mow the lawn, trim the shrubs, and do a bit of gardening if possible to improve your curb appeal. If necessary, take the extra steps to restain decks, refresh exterior paint, or power wash driveways and sidewalks to freshen up the outside of the house even further. If a home has a beautiful exterior, it usually gets a better appraisal value.
Know the Neighborhood
Make sure the home appraiser is aware of any recent improvements in the overall neighborhood. Perks like new or highly rated schools, parks, transportation improvements, shopping, or other amenities that benefit residents are worth mentioning. These changes can add significant value to the appraised home. If the appraiser is not a local resident, they might only know general area information, and pointing out more specific neighborhood data can improve home value.
Make a Few Minor Repairs
If there are any broken doors, windows, chipped paint, damaged tiles or loose shingles, take care of it. Switch out leaky bathroom faucets with shiny current versions. Make minor repairs and maintenance since any malfunctions or damaged items could reduce the home value. Evaluate if a big repair, like a roof replacement or foundation setting, is needed as it can blow up a real estate transaction. Making fixes before an appraisal makes the process easier for every party.
Prepare the Home
Though an appraiser does not look at furniture or decor, it is best practice to declutter and spruce up the home before the home appraisal. It helps to make an outstanding first impression. Clutter distracts from showing off the positive features of the property. Keep spaces open and organized, and try to create a neutral space with neutral wall paint. Just like with the exterior, having an appealing interior helps the appraiser to properly and positively assess the home.
Home appraisals are important for buyers, sellers, and current homeowners alike when figuring out how to determine home value. Appraisers keep an eye out for many different features to come up with the most accurate home valuation, and there are certain things homeowners can do to increase that estimate. By paying attention to comps in the area, improving the overall condition of the home, and being knowledgeable about local market and amenities, the home appraisal will go successfully and smoothly for all involved.