You found the house, and you and the seller have agreed on a sale price. Congratulations. Now it’s full steam ahead to closing. Not so fast. Some essential steps to the home buying process are just ahead, and one of those is the home appraisal. Read on to learn what home appraisers look for in determining the value of a house.
What are home appraisals used for?
The purpose of the appraisal is to provide a fair and unbiased market value of the home. It’s an essential part of your loan package, and lenders won’t offer financing for the property without one.
In addition, the house is collateral for your loan, so unless you’re paying cash for the property, you’ll need an appraisal.
The home appraisal provides the lender, and you, with verification that the agreed-upon sale price isn’t too high.
If the appraised value is higher than your agreed-upon sale price, that’s okay because that means the home is worth more than what you’re paying for it – instant equity. It’s another story if the appraised value comes in lower than the sale price, and we’ll cover that a little later.
What do home appraisers look for inside the house?
Home appraisers provide a thorough evaluation of all aspects of a property they are appraising. Although there are many components to the home appraisal process, the outside of the house and what appraisers look for in the house’s interior are big ones.
When looking at the interior of your prospective home, the appraiser will consider the overall design and condition of the house, making sure there are no health or safety code violations or any signs of pests like termites or rodents.
They’ll also be making notes of any deferred maintenance or water damage they find.
Appraisers sometimes place repair requirements on the appraisal, depending on what they see. If there are any appraisal requirements, these must be completed before closing the house.
The appraiser will also see if the property’s interior has a dated appearance since this will impact the home’s value. A dated appearance can include outdated light fixtures, faucets, and kitchen appliances.
They will look to see if there are fireplaces in the home, any improvements or upgrades, and their overall quality. Will note things like insulated windows, central a/c, and a security system.
Do appraisers look in closets?
Appraisers do look in closets to determine the property’s total square footage.
Of course, that doesn’t mean every single inch of your house has to be in tip-top shape for the appraisal, but the interior of the home should be clean and free of clutter, including closets, under sinks, and in the attic.
That will make the appraiser’s job that much easier.
What do home appraisers look for outside the house?
On the house’s exterior, careful consideration will be given to the roof and foundation. In evaluating the ceiling, the appraiser will be looking for any missing shingles or other visible defects.
Damage to the building’s roof can allow water to seep inside and cause problems such as vermin or small animal infestation.
When assessing the foundation, an appraiser will look for vertical or horizontal cracks, crumbling of the foundation, or any signs of water leakage. While outside, the appraiser will evaluate the chimney to see if it is cracked or shifted from its original placement.
Important aspects the appraiser will review when determining property value include the porch, deck, siding, garage, and the size of the lot and location of your property.
What else do property appraisers look for when assessing a home’s value?
When assessing a home’s value, appraisers look for “luxury” items. Examples are an outdoor or indoor swimming pool, gourmet kitchen with warming drawers, theatre rooms, outdoor kitchens, and spa bathrooms.
What do home appraisers do not look for?
Appraisers don’t look at your choice of home décor or items like window curtains and blinds that can be taken down and removed from the home, as they are not considered real property.
They will also overlook any “lived-in look” your home may have. They are trained to look past the evidence that a person or family resides in the house. None of that will factor into the value ascribed to the house when appraised.
However, a “lived-in look” doesn’t mean kitchen cabinets that are missing doorknobs or bathtubs whose faucets continually drip water. Those are examples of deferred maintenance, and they will be considered when the appraiser is formulating the property’s value.
How does the appraiser determine the value of a house?
Once the appraiser has made a physical inspection of the property, they’ll gather information on “comps,” or comparable home sales located as close to the subject property as possible.
For example, the appraiser would not use three or four single-story ranch-style homes in Charlotte, NC, as comps for a two-story property in Denver, CO. Instead, they’ll try to locate other ranch-style dwellings to use to compare the house being appraised.
Not only do the comps need to be similar in style to the house being appraised, but they also must have sold recently, typically within the past six months, and be located close to the subject property.
Using real estate comps similar to your property and which have sold recently in your area helps the appraiser approximate the fair market value of your home.
However, there are times when appraisers cannot always find three or four comparable homes that are exactly like the house being appraised.
When that happens, the appraiser will adjust for differences in the features and characteristics between the subject property and the comps chosen to determine a home’s value.
Things like where the house is located, its overall condition, how old it is, and what amenities it has are all things appraisers consider when comparing the property to the comps.
For example, let’s say your home has three bedrooms and two full baths, but one of the comps has four bedrooms and two full baths.
Although this home could still be used as a “comparable” property, the appraiser would need to adjust due to the comp having an extra bedroom.
The appraiser then combines what they have learned about the subject property from their physical evaluation with what they know about the comps to arrive at its fair market value or appraised value.
How to get your home ready for an appraisal – checklist
There are many things you can do to get your home prepared for a visit from the appraiser. When you’re on the selling side of the appraisal, a checklist comes in handy to make sure you don’t forget anything.
Please make a list of any improvements you’ve made to your home and give it to the appraiser. For example, maybe you’ve added a bathroom or finished off the basement. Put those on the list.
Have you installed new siding or replaced the roof? Those go on the list too. Specific home improvements can add value to a home, and you want the appraiser to know about all of them.
Have your real estate agent make a list of suitable comps for your home to give to the appraiser. Your realtor sees many houses, and they have probably seen properties in your area that would make good comps. That can be helpful for the appraiser when they go to write up the report.
Make sure all areas of the house are easily accessible. That includes the crawl space, basement, attic, and all rooms and closets.
Deep clean. You want to put your best foot forward ahead of an appraiser’s visit, so be sure to clear away any clutter and clean the hard-to-reach spots to showcase your home in the best light.
When beginning to clean any room, try decluttering first. Go from room to room while sorting items into three stacks: one to give away, one to keep, and a third to throw away.
Place the items you decide to save where they belong to avoid adding to the clutter. Remember, having your home in great shape can go a long way in ensuring the appraiser walks away with a positive impression.
Tidy up the outside, front, and back of your house. You don’t need to have your Master Gardener certificate to get your yard looking good.
Trimming shrubs and bushes, cleaning up leaf litter, and adding color to the front porch area with plantings are especially helpful for curb appeal.
Other budget-friendly curb appeal ideas you might incorporate into your prep work might be to go over the front door with a fresh coat of paint or add outdoor lighting on the patio.
Make any minor repairs you can. Remember that loose kitchen cabinet doorknob? Or the leaky faucet in the bathroom? Grab your screwdriver and wrench and fix those items. Just a little bit of elbow grease on your part could impact the property’s appraised value.
What happens if your house gets a low appraisal?
Your lender just called, and the appraisal has arrived. The house appraised $1,000 higher than the sale price you agreed to. That’s excellent news, and chances are the seller is okay with that.
But what happens if the appraisal comes in lower than the agreed-to sale price? Several things can happen in this case.
Let’s say you and the seller agreed to a sale price of $250,000, but the appraisal comes in at $230,000; that’s a $20,000 difference, and your lender won’t be the one making up that difference.
One way to protect yourself against this is to write an appraisal contingency clause into the sales contract when you write up the initial offer. This clause gives the buyer the right to walk away from the deal and return their earnest money if the house appraisal comes in low.
If you didn’t have an appraisal contingency clause attached to the sales contract, there are still ways to make the deal work.
One way would be to pay the $20,000 difference in cash. Another way would be to ask the seller to lower the sale price by $20,000.
You could also offer to split the difference between the two of you in whatever way is agreeable to both parties.
Yet another option would be to challenge the appraisal and get the property appraiser to modify their opinion about the home’s market value.
Of course, you can also ask to be let out of the contract, but without an appraisal contingency clause, you may forfeit your earnest money if you do.
Key takeaways
Appraisers consider many elements when determining the value of a house, and understanding the home appraisal process is an essential aspect of a successful home sale.
Can do many items to prepare for the appraisal, whether you’re buying or selling, that can make the process go as smoothly as possible.
However, if you happen to hit a snag along the way, your real estate agent can answer any questions you have and help you successfully maneuver through the home buying or selling process.
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