What Affects Your Home Appraised Value?
Are you going to be buying or selling a home? Are you wondering what will determine your home’s appraised value? Dealing with the house appraisal process is part of most real estate transactions, whether you are buying or selling a home.
By the time you’re done reading, you’ll know what appraisals are and what you can expect the appraiser to look at to judge value.
The real estate appraiser will use various factors to decide what the appraised value comes in at. They compare your home to other properties in the same area to find the fair market value.
Most appraisers will use what is called the Uniform Residential Appraisal Report. They will fill out this form and send it to the lender who has ordered the appraisal.
Mortgage lenders use this information to ensure they want to grant a loan.
Real Estate agents who have been in the business for any time are usually familiar with this appraisal report.
If there is ever the need to challenge a low appraisal, an agent will become even more intimately familiar with it.
Buyers will receive a copy of the appraisal as part of their closing package.
Sometimes, unskilled real estate agents will use simple methods for calculating property values, such as price per square foot. There are many reasons why this is such a poor evaluation method, which is worth reading.
Let’s look at the factors considered when finding the value during a home appraisal. An appraisal for homes takes into consideration so many conditions. Knowing what they are when buying or selling is worth your time.
The Location of Your Home
The location is one of the most critical factors that determine a home’s value. Appraising a property will be heavily influenced by location. Not only will the area in which your home is located affect its value, but its position can also make a difference.
Does the area have a low crime rate? Is it close to amenities and schools? Is the home located on a large plot away from busy main roads?
In the Uniform Residential Appraisal Report from Fannie Mae, you can see a specific area in the report that an appraiser will use to grade the location.
This appraisal report factors in several neighborhood conditions in the assessment. This includes the housing trends, the type of neighborhood, values, and the percentage of commercial property.
Many things make for a good location. This includes low crime rates and highly rated schools, many owner-occupied homes, and proximity to a city.
Locations typically come in three categories that can substantially impact the appraised value. The three areas are inside a neighborhood or subdivision, on a country road, and on a busy street.
As you might imagine, being in a nice neighborhood carries far more weight than being on a busy street. An identical home in a subdivision vs. a busy road could be worth tens of thousands of dollars more.
Here are some of the location factors that could impact the appraisal value of a home:
- What is the accessibility to major routes?
- How close is the neighborhood to modern conveniences such as restaurants and shopping? Is there is a Starbucks or Dunkin Donuts nearby? Studies have shown buyers are willing to pay more when these amenities are nearby.
- What is the crime rate?
- How walkable are the neighborhood and area? Here is a nifty tool that will gauge the walkability for you. It is called Walkscore.
- How is the school district rating? Most buyers will be willing to pay extra for exceptional schools.
- Are the roads well-lit and maintained? Are their sidewalks?
- How close is the nearest hospital, police, and fire station?
- Is public transportation available to a nearby city, such as a commuter rail?
Your Homes Square Footage Influences The Appraisal
The size of a home will dramatically impact the appraised value. The size will heavily influence an appraiser’s determination of value in comparison to other comparable homes.
Appraisers must measure your home’s dimensions so this feature will accurately reflect the potential value.
The appraiser will work out the square footage of your home, establishing how much of it is livable space.
It is worth noting that when appraising a property, the appraiser will value above-grade space much differently than below-grade.
No matter how nice it is, the living area will not have the same value as the grade space.
Quite often, homeowners are disappointed to learn that the finished basement they spent $150,000 on with a home theater and gym is not worth what they thought it should be.
It is also worth noting that areas below grade can be “rated” just like other features in your home.
For example, all things being equal, a ” walkout ” basement with full windows and natural light will be worth more than a basement with four concrete walls.
So, a basement will add value based on a few different factors, but it won’t be the same as an above-grade living area.
How Many Bedrooms and Baths Affect Home Appraisal Value
The more bedrooms and baths a home has, the greater the appeal to many buyers. The house appraisal will make your home worth more if you have more bedrooms and baths.
You can expect the appraiser to compare your property with the same number of bedrooms to make a comparison. If your home has fewer or more bedrooms, an adjustment made in the appraisal report will reflect this.
The adjustments for value tend to be different when comparing the number of bedrooms. For example, the bump in value going from a one-bedroom home to a two-bedroom home could be significant.
One-bedroom homes are considered rare and undesirable. Anything considered unusual can have a detrimental effect on a home’s market value.
In addition to the number of baths, the quality will influence the appraisal. Adding granite counters, tile showers, and a whirlpool tub could positively impact the market value.
The Quality of Materials Used
What construction materials have been used to build the home? If modern materials have been used in the property, or the house has been renovated to improve the structure, the fair market value will be higher. Numerous items could factor into the value when it comes to materials used.
For example, are their crown moldings, wainscoting, and other high-end finishes? Are the doors solid or hollow core? Homebuyers are willing to pay more when they know the quality of a property is exceptional.
There are many reasons a home’s appraised value comes in less than expected. The quality could be one of them.
Your HVAC Impacts House Value
The heating and air conditioning in your home affect the market value and, therefore, the appraisal of your home. Older systems will reduce the value compared to newer equipment.
Properties with central air are better than those with individual room systems. The fuel that your heating uses is also a consideration.
For example, if most of the properties in your area are serviced by gas or oil and your home has electric heat, it could be seen as detrimental. The appraised value could be altered if electricity costs are much higher than other utilities, leading to more expensive living conditions.
Outdated systems could also influence the appraised value.
How Old is The Property?
A new home will not necessarily be appraised higher than an older one, but it is less likely to have significant problems. The appraisal value will be higher because the home is less likely to affect the buyer adversely.
Some of the age concerns can be removed when major systems in the home have been updated to today’s building standards.
However, if older homes have been maintained in good condition and located in a historic area, they will usually be appraised higher.
Having a home that is labeled “historic” helps to raise the appraised value. Estimates of an increased home appraisal value range anywhere from five to twenty percent, according to research.
There are mixed opinions on whether being located in a historic district will help or hurt appraised value.
The naysayers say that being in an area labeled historic will restrict them from making changes to a home or, if approved, take an extraordinary amount of time for approval.
What is The Style of Your House
Certain styles are more likely to appeal to buyers than others. If your home is an outdated style, perhaps from the 70s, it will be less appealing to buyers, and therefore the value will be lower.
If your home’s style and design are more in vogue, it will be appraised for a higher amount.
Demand for a specific type of property will undoubtedly influence value. For example, in Massachusetts, traditional colonials are viewed much more favorably than true contemporaries. Being in New England, far more folks want a colonial than a contemporary dwelling.
If you get transferred for work a lot, you might want to consider a safe purchase and go with a popular home style.
Those who need to sell a home fast will be better positioned when most buyers prefer a particular style.
Appeal and Appearance of Your Home
Does the outside appearance of your home impress potential buyers? If your home lacks instant curb appeal, it will naturally be valued less during the home appraisal.
Appraising a home is a combination of art and science. There is some human element of judgment involved. If the exterior of your home has not been maintained, has rotted wood, needs a paint job, or is in general disrepair, the appraiser will note it.
You can expect conditions like this to impact the home appraisal negatively. One of the wisest things you can do is clean up your yard, take care of any noticeable blemishes to your exterior, and ensure the landscaping is presentable.
Getting ready for an appraisal when selling a home is more than prudent!
Major Renovations Influences Appraisal Value
If you have undertaken renovation work on your property, it should increase the value over previous home appraisals. Potential buyers are always looking for updated kitchens and bathrooms, so renovations of this type will increase your home’s value.
However, to increase the appraised value of your property, you don’t necessarily need to undertake major renovations. Lower cost improvements can also so have a significant effect on the value of your home.
A new front door, garage door, and a general improvement to your home entrance will increase the value.
Updating the siding outside your property can also significantly increase the appraisal, especially if it was previously in disrepair.
Hardwood floors are another option that improves the fair market value. Hardwood is generally a preferred flooring choice, especially in higher-end homes.
In other words, you will rarely see carpets throughout a luxury home. Having inappropriate flooring selections for a home’s caliber could negatively influence the home’s appraisal.
However, it should be abundantly clear that not every “improvement” increases appraised value. Some improvements can decrease a home’s value.
Garages and Storage Are Significant Appraisal Factors
Two-car garages are better than single garages. The more garage space you have for vehicles, the higher the home will appraise for all other things being equal.
If you are located in a luxury home development, and most homes have 3-car garages, and yours has 2, this could impact the appraisal.
More storage space will also increase your home’s value. Homebuyers are looking for large closets as well as attic space and basements.
Local Amenities Can Favor House Values
If your neighborhood has easy access to outdoor spaces like parks and playgrounds, this will increase the value of your home. Local beaches or lakes will be much more desirable to buyers over a power plant or landfill.
Whenever a home is on the water, it is almost always worth significantly more. Homebuyers are willing to pay a premium to be located on waterfront property.
New developments in the local area can also reduce your home’s value, thanks to more competition.
The Local Real Estate Market
The real estate market in your local area will significantly affect the price at which the home is appraised.
If homes in your area are in high demand, you can expect your house appraisal to be much higher than if there were more homes available than buyers.
In strong seller’s real estate markets, it is not uncommon to see bidding wars when the demand far outweighs the supply.
In such environments, appraising becomes far more challenging to an appraiser because the comparable sales have not caught up to the new contract prices.
With supply and demand being essential, the value will often change through factors entirely out of your control.
Other things like interest rates, buyer confidence, and the prosperity of local towns and cities also have a considerable effect on the value of your home.
The economic outlook, in general, can also influence the value of housing and, therefore, appraised value. Here are some additional factors that could affect the appraisal.
- The local and national projected economic growth or contraction.
- Interest rates and the ability to procure a mortgage.
- Inventory levels in comparison to buyer demand.
- The growth or contraction of an abutting town could increase or decrease local demand.
- Overall confidence in the stock market and real estate market in general.
Comparisons Used By Appraisers
Typically, the appraiser will look at three comparable homes to judge the value compared to yours. While these homes are unlikely to be identical, the differences will be factored into the appraiser’s findings.
On the appraisal report mentioned earlier, you will notice a place where the appraiser will either increase or decrease your home’s appraised value based on the comps they are using. These are called appraisal adjustments.
If your home lacks similar properties in the area in terms of size, location, and features, your home will be appraised less by comparison. Therefore, it is crucial to ensure that your home meets the standards of those in your neighborhood.
One thing worth noting is that Zillow home values have nothing to do with appraising your house. Appraisers do not look at Zillow, nor should they. If you are putting any stock of a Zillow estimate as your home’s market value, you’ll be disappointed.
What Factors Negatively Impact Appraised Value?
While you have seen many factors that will increase your home’s appraised value, what about the things that decrease it? Here are some things that will be considered negatives when appraising a home. The appraiser could consider any number of these when determining a final value.
- Proximity to power lines – depending on the type of lines, they have been known to cause cancer.
- Being close to a noisy gun range – not only is the noise a factor but the fear of small children of people shooting guns nearby.
- Having train tracks abutting a home – many buyers will not want a train in their backyard.
- Abutting a highway – when you are on top of a central traffic hub, the noise, and the visual aspect are not only an issue.
- A sex offender in the neighborhood – to most people, having a registered sex offender nearby when they have children is a significant issue.
- Hoarders living next door – seeing abandoned vehicles, old couches, and other stuff that remind you of Sanford and Son is not appealing. If the property next door looks like a junkyard, it could impact the house appraisal.
See the entire list of things that could negatively impact an appraisal here.
Final Thoughts on Home Appraisal Values
Knowing the factors considered when valuing your home allows you to make changes to increase your house’s fair market value. It also gives you a better understanding of the best time to put your home on the market.
Understanding the guidance here should help increase your home’s sales price when you put it on the market.
It would help if you now had a much better understanding of the factors that influence the appraisal of your home. Hopefully, you have found this appraisal guide helpful, whether buying or selling.
About the Author: Bill Gassett, a nationally recognized leader in his field, provided information on factors determining your home 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.
Excellent info, Bill.
Thanks, Gabe. There are so many factors that go into determining appraised value.