What is The Home Appraiser Appraising?
What do appraisers look for? This is a question many clients have asked me over the years. A visit from a home appraiser is an inevitable part of selling your home.
Even if your buyer is happy to pay what you ask and loves the place, the lender will still require that an objective third party – a professional appraiser – come through the home to determine its value.
Their opinion of value is what’s known as an appraisal.
Because the appraiser operates independently, their opinion will be based purely on the market and the state of your property.
But, while you may not be able to sway the final verdict, it is certainly worthwhile to know what an appraiser will look for.
Many homeowners ask me, “How does the house appraiser determine the value of my home”?
The fear, of course, on the seller’s part is that their home is, for some reason, not going to appraise accurately.
Remember that a house not appraised for at least the asking price is a rarity!
For the appraiser to figure out the value of a property, they must understand quite a bit about the construction and maintenance of a home to do a good job. This is part of what an appraiser looks for.
The most vital things appraisers look at are the overall state of the property, its location, age, size, distinctive attributes, and any renovations or upgrades that have been done.
There are certain aspects of your home that you cannot change, such as its location, age, and size.
However, you control the general condition and the improvements you make. Prioritizing enhancements that will add the most value to your home is essential.
From nearly forty years of meeting appraisers at homes, it is essential for a home buyer and seller to know what they will be examining.
An appraiser will do an inspection for a purchase agreement and refinances. Most of the time they are working for the mortgage lender to provide documentation of value in the home loan process.
What is a Home Appraiser?
An independent home appraiser is hired to evaluate the fair market value to provide an accurate value to the lender. A home appraiser uses data to estimate this value based on the property’s many characteristics, including the size, location, amenities, upgrades, and condition.
To appraise a property, some requirements need to be met. Qualifications for being an appraiser include passing an exam, having a license, and taking continuing education courses.
They will compare your home to others recently sold in the area to estimate their value. To do an appraisal, an appraiser needs to be licensed.
The majority of all real estate appraisers will use what is known as the Uniform Residential Appraisal Report. You can see what it looks like in this PDF example.
This standardized appraisal document will be completed and returned to the lender who ordered the appraisal.
The lender granting the mortgage to a buyer will use it to determine whether they want to lend on a particular property.
The information that is found in the report is what’s known as “comparable sales.” Home appraisers will adjust their appraisal report based on numerous factors compared to the subject property.
A home appraiser plays a significant role in many real estate transactions because it is their opinion of value in which the lender makes a lending judgment.
Facts About The Role and Importance of a Real Estate Appraiser
1. An appraiser evaluates the value of a property based on various factors.
2. They consider the property’s location, including proximity to amenities and desirable neighborhoods.
3. The property’s condition is essential, as appraisers look for defects or maintenance issues.
4. Comparable sales in the area also play a significant role in determining value for home appraisals.
5. The size and layout of the property, as well as any unique features it may have, are taken into account during the appraisal process.
6. It’s essential for real estate agents and homeowners to detail any recent upgrades to the property at the appointment.
7. You can expect appraisers to take measurements to ensure accuracy on the size of the property.
8. Appraisers look at over 20 different items when evaluating a property.
Home appraisers will look for several different things to get an accurate real estate appraisal, including:
Your Home’s Exterior
At its most basic, a home comprises a foundation, walls, and a roof. All three of these play significant roles in the functionality and reliability of a dwelling, and the appraiser for the house will pay serious attention to all of them.
They will look for defects in the home’s general construction and any damage to these components.
A problem with a roof or foundation problem can quickly make a home inhabitable, so be aware that the home appraiser will focus intensely on these. They will also look to ensure there are no zoning violations.
Remember, the home appraiser is there to report back to the lender, who will provide the buyer with a mortgage.
The home appraisal’s primary purpose is to ensure the mortgage holder is not lending money on a property that does not have the necessary equity.
Appraisers will note the exterior’s curb appeal to compare it against other similar properties.
The Size of the Property Plays a Key Role
The size of your lot and your home are important considerations for the appraiser. They are significant factors that determine an appraised value. People prefer larger homes and lots, so you can expect these to come into play when your house is evaluated.
For example, a level one-acre lot with great landscaping might be worth more than a 2-acre lot where wetlands occupy ninety percent. This is the kind of judgment a home appraiser needs to make when evaluating one property to the next.
The amount and type of bathrooms and bedrooms can impact marketability and value significantly.
Typically, the more bedrooms and bathrooms you have, the more you can expect the house to be worth – especially if they are large and accommodating.
Homebuyers like the opportunity to expand and are more likely to desire a property that will allow this. The home’s square footage will make up much of what goes into figuring out the home’s appraised value.
The house appraiser will pay special attention to these factors.
Condition of The Interior is an Essential Factor
A significant part of what an appraiser looks for in a home is the interior condition and the offered amenities. Even if the roof, siding, and foundation are all in excellent shape, the interior of your property is just as crucial to the home appraiser when assessing value.
Things like windows and doors, flooring, walls, paint, plumbing, electrical, kitchen, and bathroom are essential parts of a home.
The appraiser must know about all of these and be able to tell good from bad, and you can rest assured that they will look closely at yours. This is true even with your home’s appliances and light fixtures installed.
They all impact the purchase price, so you can expect them to influence the appraiser.
Home Improvements Are Key Elements in Appraisals
The value of a home does not stop at its original construction. The house appraiser will be very interested in any improvements you have made and the quality of those improvements.
To determine overall value, the appraiser considers a new floor, a renovated bathroom or kitchen, appliances, or an HVAC system.
Buyers and lenders love newer appliances and quality renovations because they contribute to the property’s lasting value.
A new dishwasher and kitchen renovation may add another 20 years to a kitchen’s life, which is suitable for everyone involved.
Home improvements will undoubtedly be a factor in how an appraiser determines the value of a home!
From my experience in real estate many homeowners and Realtors fail to detail the history of upgrades which can influence the outcome of the appraisal.
It is wise to detail your improvements, especially with major systems in your home.
Extras and Additions Factor Into House Appraisals
The extra things that make your home special will also be appraised. A home may be elementary or have some additions that make it more appealing.
For instance, air conditioning in a colder climate might be unusual for the area but fantastic for the homeowner during the few hot summer months. A swimming pool is another example.
If the pool is in good shape and in an area where people are willing to pay for it, it could add to the value of your home.
Even things you might consider essential, like insulated windows, fireplaces, a garage, or a security system, can all add value to your home during the appraisal process.
These are all critical elements for what appraisers look for during the home appraisal process.
Some Home Loans Require Extra Work
Some loans will require additional things to look at for a property appraiser. For example, the appraisal guidelines will be different with an FHA loan.
There will be an FHA appraisal checklist for the appraiser to follow on the condition. The home must meet specific safety guidelines for a home loan to be granted.
The appraiser will be required to look for signs of violations before submitting their report. A VA loan also has inspection requirements for appraisals.
Borrowers should speak to their mortgage broker or bank when buying a home in rough shape.
How Do Appraisers Calculate My Home Value
How do real estate appraisers determine market value? Now that you understand what house appraisers look at during a real estate appraisal, you probably want to know how they calculate the actual market value from this information.
Let’s examine what an appraiser does.
Most residential property is evaluated by following what is known as the comparable sales price approach.
An appraiser will essentially use market data of most similar homes sold within a certain distance of your home over the last six months. These are referred to in the industry as “real estate comps.”
Appraisers generally will not use data that goes back longer than six months. The older the data, the less accurate it is in determining current real estate values. Ideally, the data should be three months or less, if possible.
These homes they are using will be considered most similar to your home. For example, if you are selling a ranch home, the comparable sales should be other like ranches, not colonials.
Appraisers will then make adjustments based on the features and characteristics of the other homes.
For example, your home has three bedrooms and one bath. One of the neighborhood’s comparable homes is very similar in size to your home but has four bedrooms and two full baths. The appraiser could use this property as a “comp” but would need to adjust because there was one more bedroom and bath.
As mentioned above, appraisers can use all sorts of adjustments to determine a home’s value. Location, age, condition, and amenities decide residential real estate value.
How to Challenge a Low Real Estate Appraisal
Sometimes, homeowners face a home that is not appraised for what the buyer is willing to pay. It’s called an appraisal gap.
If this happens to you, you must take steps for your sale to proceed to closing.
You will need to take the necessary steps to contest the appraisal.
If you get stuck with a low home appraisal, you first want to get a copy of the report and review it with a fine-tooth comb. The above reference will give you a complete blueprint on how to go about disputing a low house appraisal.
Sometimes, a home comes in at a value lower than it should because the appraiser has made a clerical error in their report, causing the value to follow suit.
It could be something as simple as the square footage of your home being off or the appraiser not giving an appropriate value to a superior location to your home.
If there are no errors in the report, you should also look at the comparable properties the appraiser used. Are they truly equal?
Home buyers can also terminate the sale if they have an appraisal contingency. You may feel the research provided by the appraiser was accurate, and you’ve overpaid.
Did The Home Appraiser Make Adjustment Errors?
Sometimes, they are not because the appraiser does not know the area as well as they should. A few years ago, this scenario popped up while selling a home in Milford, MA. It became necessary to challenge an appraisal that came in low.
I knew there was a pretty good chance the appraisal would get adjusted because there was a factual error in the report and a judgment error when placing a value on the home’s location.
However, if both of these things check out, the last resort would be to ask the buyer to get another home appraisal done. A cost will be associated with getting a second appraisal, so be prepared to put the money up for it.
Remember that the buyer may not cooperate when the appraisal is low. After all, many buyers will look at the appraiser as a professional.
Buyers certainly do not want to overpay for a property. It would be best to remember this as you are challenging the value. However, as with other professions, there are good and bad appraisers.
When a buyer does not cooperate after receiving a low real estate appraisal, your last resort is to keep the sale together, which will reduce your home sale price to match the appraisal value.
How to Avoid a Low House Appraisal
Nobody wants to be faced with going through a low appraisal when selling a home. The appraiser may be immune to your opinions on your home and unconcerned with your need to sell for a higher price. However, you can still do a few things to improve your odds of a favorable appraisal.
Are there things you can do to avoid getting stuck with a low home appraisal? Of course, it starts with paying attention to the condition and presentation of your home!
List Improvements and Extras For The Home Appraiser
As mentioned, it is vital to list the upgrades in your home. Put the number and type of improvements down on paper. Make it easy for the appraiser to see examples of everything you’ve done.
The appraiser may be highly trained and have a sharp eye, yet fail to see certain things. One of the things real estate agents should be doing is making the house appraiser’s job easier. As you have learned, home appraisers look for certain things. If you can make their job easier, that is great.
Make a list of all the home improvements you have made to the house and any extras you think they might want to know about. This will make the appraiser’s work more manageable and ensure that nothing is missed in the appraisal.
Some of the things that will be important to an appraiser are significant structural or mechanical additions like a new kitchen or bath. If you have upgraded the heating system, replaced the roof, or installed new siding, these things are worth noting as they will impact the home value.
Clean The Home Up Before The Appraisal
Make sure your home is uncluttered and clean before the appraiser visits. The appraiser is going off a lot of information, but they also judge what is good or bad about your home.
Help those judgments by presenting a sparkling appearance free of junk and anything unsightly. While some appraisers are strictly bean counters, I think a home in excellent showing shape makes a difference.
Years ago, when I got into the real estate business, I neglected to tell a seller the importance of having a clean and tidy home. When the appraiser and I arrived at the house, dishes were in the sink, food on the counter, clothes on the floor, and beds unmade.
The home looked like a disaster area. From that day forward, I always remember to tell my seller client how important appearances can be.
Let’s face it; there is a psychological aspect when we visit homes. You either feel good or you don’t when you enter a property. You want the real estate appraiser to feel great when they leave your home.
When they are back at their office creating the appraisal, the last thing you want them thinking about is your mess.
Sharpen Your Landscaping and Curb Appeal
You do not have to be a gardener or landscape professional to clean up the yard, cut the grass, trim the hedges, and throw a layer of mulch in the flowerbeds.
You may be thinking to yourself, why does this matter? Isn’t the home appraiser only concerned with square footage and other more tangible things like bedroom and bath counts? Sure, those are important, but don’t think for a minute that an appraiser is not human!
The appraiser is going to be taking mental notes of everything. You don’t want your yard to look like Sanford and Son! Making an effort for your yard to look great will pay dividends.
Repair What You Can
The appraiser may notice any minor issues, so do what you can to fix them. Replace the toilet flap so it does not leak, and replace the missing board in the fence. Thirty minutes of repair work could make a difference in the ultimate value the appraiser comes up with for your home.
Don’t expect the appraiser not to notice necessary repairs. They will! Some things can hurt an appraisal. Do your best to remedy these potential problems.
Be Helpful to The Home Appraiser
Answer questions honestly and ensure the appraiser has easy access to all areas of your home.
The real estate appraisal is something that you want your Realtor to attend. More often than not, the appraiser will have questions about the property.
An excellent real estate agent should be there to represent your best interests in the sale! One of the things a Realtor can do that helps a real estate appraiser is to have comparable properties on hand.
Your real estate agent can bring the listing sheets to the appraisal and hand them to the appraiser.
Most home appraisers will love that you are making their job more comfortable! A Realtor should never assume the appraiser knows the comparable properties better than they do.
Often, the appraiser has not seen the comparable properties, but the real estate agent has! This can be a significant advantage in helping the appraiser do their job correctly.
A house appraisal is a big hurdle you need to clear, so it only makes sense you will give this step in the home selling process the attention it deserves.
Knowing how the home appraiser determines your property’s value goes a long way in ensuring there will be no issues with the house appraising properly.
Real Estate Appraisal Myths to Know
Sometimes, in real estate, there are certain things that people say and do that somehow become facts in the minds of consumers and real estate agents. A couple of these are that real estate appraisers consider a home’s assessed value when determining appraised value. Wrong, they do not!
Assessed value has nothing to do with market value and is a measuring stick for how much a municipality must collect for its tax roles. Realtors, unfortunately, often perpetuate this myth in their marketing. “Come look at this incredible home, under-priced a hundred thousand below-assessed value.” The assumption the agent would have you believe is that the assessed value is the market value. Sorry, guys, it isn’t!
House appraisers also do not look at the Zillow value of your home either! This is another home appraisal myth that seems to be making the rounds. Do you seriously believe a competent appraiser would consider what a computer thinks your home is worth? Believe it or not, some folks do.
Appraisers understand that Zillow’s home values are not accurate. In fact, in many markets, they are so far off you wonder why Zillow would want to have such inaccurate information on an otherwise excellent site for providing real estate data.
As a homeowner, these are all the things you should be concerned about trying to navigate your way through the real estate appraisal process. Hopefully, this information has been helpful whether you will be selling your home now or shortly!
Understanding what house appraisers look for is critical information for buyers and sellers. Hopefully, you now better understand the appraisal process and what to expect.
Conclusion
As you can see, an appraiser looks at numerous items before completing their work. Now that you know what appraisers do, you can plan accordingly when buying or selling.
The bottom line is you can help the outcome when you know what to address.
About the Author: Bill Gassett, a nationally recognized leader in his field, provided information on what home appraisers look for during a real estate appraisal. He is an expert in mortgages, financing, moving, home improvement, and general real estate.
Learn more about Bill Gassett and the publications he has been featured in. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. Bill has helped people move in and out of Metrowest towns for the last 38+ years.
Are you thinking of selling your home? I am passionate about real estate and love sharing my marketing expertise!
I service Real Estate Sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, and Uxbridge MA.
Bill, I just had this happen where the appraisal came in very low. I’m representing the buyer and I had reasons to believe the appraisal would come in low because my CMA showed the value very close. I advised my buyer to make appraisal contingent when agreeing to sellers counter. Seller of course very upset, we could not negotiate with seller who was represented by listing agent. This is a repercussion when agents take overpriced listings and sellers who are set on a price.
Needless to say, I helped my seller from making a $30k mistake.
Petra that is what a good buyers agent should do! Real Estate agents need to remember who they are representing and the fact the client should always come first not the agents wallet or purse!
Great resource Bill. One thing I am speaking about at my local real estate offices is knowing how to think like an appraiser. If an agent knows how an appraiser chooses comps, and uses the same guidelines they do, then the likelihood of a deal falling through is reduced. Appraisers must follow appraisal standards as well as lender underwriter guidelines when choosing comps. What might appear to be a good sale to an agent might in fact not be that comparable. If agents would like to learn more about how appraisers go about choosing comps they may want to have an appraiser talk at one of their meetings so they can find out first hand. Keep up the good work!
Thanks for dropping by and commenting Tom. Great advice for sure when it comes to appraisals and real estate agents understanding how they work.
We were looking to buy a home in 2010 and were offered a deal on a townhouse that was on the market for 164,000 for only $149,000. Unfortunately the house was only appraised for $149,000 so we have paid PMI this last 6 years.
We have since found out that the other 9 townhouses in the development have appraised and sold for a minimum $169,000 to $210,000. We feel the bank may have had involvement in the house coming in a the purchase price. Can we ask the bank to take off PMI because the house was under appraised?
Ruth it is highly unlikely the lender told the appraiser to come in at the $149,000 purchase price. It is quite common for an appraisal to come in at the purchase price. More often than not this is what the appraiser will come in at. In regards to getting your PMI removed you need to have 20 percent equity in the property before that can happen.
Is it possible if Ruth above had a new professional appraisal done that she could use it to prove she has the 20% equity now and give it to the bank, making them drop the PMI? I do believe professional appraisals cost somewhere between $400 and $500 dollars. Might be worth it.
Crystal – yes that is possible. It is also important to note that lenders must drop the PMI on a home when the equity in the home reaches 78%.
Most lenders will not consider any difference over sales price at which the appraisal comes in at. If a buyer is putting 5% down on a property selling for $100,000, even if the appraisal comes in at $120,000 (21% over loan amount of $95,000), they will not consider that for avoiding PMI. PMI can generally not be removed until 1 year after date of sale, with an appraisal that is 20% over payoff amount (outstanding balance on the mortgage at that time).
What will generally rile an appraiser is when the agent provides comps that are much larger or smaller, in both living area as well as lot size, also condition, and varying location issues, i.e. traffic or view. If the property being sold is a 1200 sf, 3 bed 1 bath ranch on 5000 sf of land from yr 1950, don’t suggest a comp that is a 2000 sf, 5 bed 3 bath colonial from yr 1998 that has just been remodeled, on a 20,000 sf lot with a hillside view, even if is right across the street. If it should come down to a dispute, you have lost all credibility.
And don’t say, “Well, this house just sold for $175,000, so my sale MUST be worth at least $100,000!”
Some mistakes that Zillow makes:
1) A comp may be 1/2 mile away, but if it’s on a highway or atop a hill with ocean view, they don’t calculate that, they just provide raw data.
2) A house may have been built in 1950, but remodeled down to the studs such that it is virtually new, and with a new floor plan. Zillow misses that.
3) Or how about a 50’s 2 bed that just sold for $2,000,000, because Zillow is still using the public record data on the property, which hasn’t caught up with the fact that the old bungalow was torn down to make way for the actual 3000 sf total contemporary that really sold for $2,000,000?
A Victorian from 1890 may be a better specimen of architectural significance and quality than a brand new tract house. Don’t let actual age fool you, but rather consider the era in which it was built. Many 1930s capes and tudors are more solidly built than most anything from the 1980s. The phrase, “They don’t make ’em like they used to,” is not for nothing.
John the question that was asked was regarding getting rid of PMI after the sale so your comment does not apply to this situation. You do not need an appraisal if you have 22 percent equity in the home. I agree with you that providing comparable sales data that does not apply to the subject property makes little sense. I am not suprised at all that you see this from some real estate agents.
Very informative! Easy read and easily understood too. I’ve had several appraisals done and never really knew what the appraiser was looking at. Well now I do. Thank you for sharing your knowledge!
What if the real estate appraisal comes in high?
Wallette an appraisal coming in high is a good thing. All parties involved in the transaction will be happy.