An appraisal is an integral part of the home buying process as it determines the objective value of a property. Lenders require an appraisal to help them evaluate a home before they issue a mortgage. Appraisals are done by trained and licensed appraisers, who will then give an unbiased report of the home's market value.
We’ve already uncovered some of the most common misconceptions about the home appraisal that most buyers and sellers have, and it’s a first step to understanding this valuable process. Now, the next important question is: “What do appraisers really look at during a real estate appraisal?”
Most appraisers use the Uniform Residential Appraisal Report by Fannie Mae, which includes a set of standards that determine the scope of an appraiser's inspection. They look at a number of factors to get an accurate appraisal, including:
The Home's Exterior
The appraiser will pay serious attention to the structural aspects of a home, specifically its foundation, the walls, and roof. The checks will determine the integrity and functionality of those three major components, as well as any defects or damage in the general construction. Any problem with the roof or foundation can immediately dismiss the home unlivable. The inspection will also assess the age of the home, any issues with siding or guttering, and evidence of leaks, cracks or water damage. Be aware that the appraiser will greatly focus on these things as they could definitely impact a home’s value.
Other external factors that will be checked include any potential issues like flood-prone areas and dead trees, parking facilities, and the home’s observable external condition.
Size of the Property
When the home is being evaluated, the size of the lot and the size of the home itself are all important considerations. An appraiser will be concerned with the total square footage and the home's functional layout, as well as the number of bedrooms and bathrooms. The more bedrooms and bathrooms there are in a home, the higher its expected value because most buyers would want the most number of rooms.
The Condition of the Home's Interior
For an appraiser, the condition of the home’s interior is just as important as its exterior. Appraisers will check the materials and condition of the windows and doors, flooring, plumbing and electrical systems, the number and quality of appliances, the kitchen, bathroom, and all other important parts of the home. He or she will also check for health and safety issues, such as fire escapes and handrails. If the home has undergone a major remodel, it is his/her job to check the code compliance requirements for certain renovation projects. Appraisers will also look closely and itemize all appliances and fixtures installed in the home, including the dishwasher, refrigerator, washer/dryer, oven, and others.
Quality Home Improvements
The appraiser will also be very interested in any improvements you made to your home, as well as the quality of those improvements. Quality upgrades that make your home more desirable will be considered by the appraiser to determine your home's overall value.
A new floor, a renovated kitchen or bathroom, new HVAC system, upgraded appliances, insulated windows, renovations to the attic, a garage, and any smart technology systems installed, can all add to the lasting value of the property. These upgrades are all critical elements and will be itemized during the home appraisal. Appraisers will also check for amenities like a fireplace, patio, fence, porch, and other home additions.
Using Comparable Sales or “Comps”
The home's location and neighborhood also have an impact on its value since appraisers also use “comparable sales” when finding the value of a home. Comparable sales refer to the prices of homes in the neighborhood that have similar age, size, and construction to the home being appraised and which have been currently sold. Appraisers will chiefly consider the square footage and the number of rooms of the home and compare it to other properties. The comparison should be apples to apples, meaning, residential homes will be compared to other homes and condos are compared to other condos. Appraisers can then make adjustments with these “comps” based on the features and qualities of the subject property. A home can be priced higher if it has more bedrooms, or its value can be lowered if there’s a problem with the roof or its foundation.
Bottom Line
Remember that an appraisal is not an exact science but only an opinion of a home's value based on the comps and the actual condition of the home. In other words, appraisers are looking for any items that can affect the home’s value. The final valuation will be based on real estate market trends, current sale prices, and the specific characteristics of the home. The final appraisal report includes the information used by the appraiser, details about the subject property, and the explanations of the valuation results. The report will be given back to the lender, who will then use it as a guide before making a decision about the loan.
