Whether you are selling or buying a home, there are two figures that are quite important, but only one dictates a specific direction. Those are the asking or listing price, and, the appraisal amount. Those two ought to be at parity, or, the appraisal should be more than the listing or asking price. If the appraisal comes in for less than the asking price or listing price, lenders will not approve a home mortgage for the buyer. Put another way, mortgage lenders won't pay more than a home is professionally deemed to be worth, according to market specifics.
This is the very reason a home appraisal is conducted in the first place, it allows banks, credit unions, and other mortgage lenders to avoid financing a bad investment. In addition, it also helps to keep any shenanigans to a minimum, when buyers and sellers collude in an attempt to benefit themselves. An appraisal is a professional snapshot of a home's value, done by a trained and experienced individual that's a third party. One thing that bears repeating is that it is, in fact, a snapshot of a home's value--the property can go up, or, down in value depending on market developments and conditions.
What a Home Appraiser Does and Doesn’t Do
When an appraisal is done on a home, it's typically at the request of the lender. The appraiser looks at the neighborhood at-large, which gives him or her a starting point as to the value of a home. Then, specifics about the home are examined and valued. One of the biggest factors is, as you might imagine, condition. A brick home with structural problems simply won't appraise for as much as it otherwise would if it was in sound condition. Any leaks, cracks, or damage will detract from a home's value, it's as simple as that.
“Mortgage lenders require an appraisal on your home before they’ll provide a loan for the simple reason that the property is the underlying asset that serves as collateral for the loan. If for some reason you run into financial difficulties and lose your home to foreclosure, your lender would need to sell the property to repay the loan. A lender will only approve a loan for a property that appraises for the full sales price of the home — or more.” --Realtor.com
The interior will also be examined, particularly the fixtures and systems. So, electrical wiring, HVAC, plumbing, walls, ceiling, floors, and overall condition are quite important. Any home improvements such as a deck, new insulation, new energy efficient appliances (if they'll sell along with the home), new windows, and other upgrades and improvements will matter. In addition to these, amenities will be inspected and noted, such as an outdoor kitchen or a gazebo. Another factor will be the yards, front and back. While their appearance won't have much of an impact, their size certainly will. The appraiser won't take into consideration things that are typically not part of the sale, such as furniture, window treatments, and so on. Basically, if it serves a function and has any impact on the value of a home, it will make the list. Though aesthetics sometimes play a small role, in general, they aren't a big deal.
What to Know about Home Appraisals
By-and-large the home appraisal will either endorse the agreed purchase price or cause it to be changed, or, even kill a deal. With that in mind, you can do some things to improve the value of your home:
- Request a local appraiser or provide information about the neighborhood. Before the lender schedules an appraisal, it's wise to request someone that's local who knows the neighborhood. If that's not possible, compile as much positive information you can and provide it to the appraiser.
- Give the appraiser a list of comparable properties in or near the neighborhood. These should be like homes, with similar square footage, number of bedrooms and bathrooms, amenities, and so on. In addition, these homes should have sold within the past three to six months.
- Document in detail all your improvements and upgrades. The appraiser won't know the history of the home, unless it's provided to him or her. If the electric system, HVAC, plumbing, or insulation has been updated, those ought to make the list.
- Point-out the best parts of your town. A new shopping mall, upscale restaurants, museums, nearby amenities and recreational opportunities, whatever it may be, should be put in-front of the appraiser.
- Improve the curb appeal to gain a psychological advantage. Appraisers are regular people, and, they can be swayed by an impressive, yet simple, curb appeal. While it doesn't impact the value of a home, it sends a signal the property is well maintained.