A home appraisal is a comprehensive report that your mortgage lender orders. It determines the market value of your property, making an appraisal an essential part of the homebuying process.
An appraisal is an objective estimate of your home’s market value by a trained and certified professional appraiser. On average, an appraisal can cost anywhere between $450 and $550 and is paid for by the buyer unless the cost is built into your closing costs or mortgage loan. Appraisals don’t technically expire, although it is up to the lender to decide if they will accept a past appraisal.
When completing an appraisal, your appraiser will look at several key variables to help determine the value of a property.
Location and neighborhood
The location and neighborhood of a property carry a great deal of weight in a home appraisal.
The appraiser will consider whether the property is close to schools, a hospital, or a park. How does the house sit on the lot? Is it set-back from a busy road, or in close proximity to it? Each of these things (and more) can influence the appraised value of a property.
The upkeep of surrounding properties, crime rates, and access to public transportation can also affect the value of a home. In the same way, if the house next door looks like a junkyard, it will likely negatively impact the subject property’s appraisal. Curb appeal is generally just as important as the inside of a home, and an appraiser will either raise or lower the appraised value based on curb appeal vis-a-vis other homes in the area.
The size of the house
Size matters, even (especially!) in real estate.
The square footage of a home has a considerable influence on the appraised value of a home. The appraiser will measure the square footage, taking into account actual living space as well as additional square footage that could be used for extra living space, such as an attic or basement. In addition, an appraiser will also place a reasonable judgment about the amount of money the current market would accommodate for additional square footage.
It’s worth noting that above-grade living space is appraised much differently than below-grade space (basements). You may have spent $50,000 on new floors and windows in the basement, but it will not be appraised at the same value as it would if you made those same improvements to the main living area.
The lot size
Again, size matters. Land in a city is generally prime real estate and worth much more than when a lot is located many miles out of town.
Even so, an appraiser will likely value a house that sits on five acres much higher than a house on a small lot, no matter where it’s located.
An appraiser will also look at the land to see if it’s usable or mainly swampland, its proximity to power lines or railroad tracks, or whether it borders a shooting range, industrial area, or a highway to determine value.
The number of bedrooms and bathrooms
Most buyers (unless they want to downsize) find more bedrooms and bathrooms appealing.
The appraiser will value the home higher if it has more bedrooms and bathrooms. They will also look at nearby comps (comparable recently sold homes) to find the bed-to-bath ratio that sells best in your area.
The floor plan or home design
Today, an open floor plan that offers flexibility for an active family generally appraises higher than a house that is considered “chopped up.”
Although it’s true that some people prefer separation between living areas, and others prefer open concept living, an appraiser will look at nearby comps and what’s “on-trend” to determine the current value of a property.
The age and condition of the house
An appraiser will make an adjustment — either an addition or subtraction — from the value of a comparable property based on interior or external factors. A house can be older and still have the same (or nearly the same) appraised value as a newer home, as long as it’s well-maintained.
However, no matter the age of a home, if an appraiser finds indications of smoke or obvious pest or water damage, it could be a warning sign of other damage, and they will likely question whether other problems are lurking behind the walls.
An appraiser is ‘the eyes’ for the bank or lender. That’s why they take photos of the inside and outside of a house — to verify the types of materials used in the updates. Are the new kitchen cabinets custom or manufactured on-site? Are the new wood floors actually wood, or a vinyl laminate?
- Jamie Rodriguez Real Estate AgentCloseJamie Rodriguez Real Estate Agent at Rodriguez Homes Currently accepting new clients
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Improvements or updates
If you haven’t saved up the money to update a tired old kitchen, or you skimped on materials for improvements, not keeping up with the Joneses next door could hurt your home appraisal. We consulted Jamie Rodriguez, a top-selling real estate agent in Grand Rapids, Michigan, to better understand the importance of an appraisal.
“An appraiser is ‘the eyes’ for the bank or lender,” Rodriguez explains. “That’s why they take photos of the inside and outside of a house — to verify the types of materials used in the updates. Are the new kitchen cabinets custom or manufactured on-site? Are the new wood floors actually wood, or a vinyl laminate?”
Appraisers look beyond the obvious to ensure that an accurate value is placed on each upgrade or improvement by the homeowner.
Rodriguez adds: ”If a homeowner has receipts for the upgrades they’ve done to the home, I may ask them to leave those receipts on the counter for the appraiser to justify the value of the recent upgrade.”
Materials used in the house
Lead paint, asbestos, and other common materials that were used in the past and are now considered hazardous may be taken into account during an appraisal. This is especially true in older homes.
Rodriguez notes: “Appraisers will also look at the quality of materials used to build the house, and if the builder used first-rate materials or substandard.”
An aging or damaged roof can decrease your property value. It is one of the first things an appraiser will look at when walking around the property, and it plays a big part in the appraised value set for the home.
Most contractors will charge between $3.50 and $5.50 per square foot to replace a roof, which means a 1,700-square-foot roof would likely cost between $5,950 and $9,350 to replace. That’s a big expense for a new buyer!
Extensive cracks, crumbling, or holes in a home’s foundation can mean costly repairs. But not all cracks or damage indicate the same level of damage, and a trained appraiser can usually tell the difference.
During their inspection, they will assess whether a crack starts at the wall and continues into the floor and therefore may involve the home’s footings, which can be expensive to fix.
On the other hand, shrinkage cracks, which can be caused by any number of variables like rapid curing or extreme weather, may be less likely to ever cause a problem and are not considered a reason to lower an appraisal.
Heating and cooling systems
The appraiser will examine both the heating and cooling systems to determine if each is adequate for comfortable and healthful living conditions.
The type of unit, fuel, or design doesn’t play a part in the appraisal. However, the systems must be installed correctly and in working condition. If not, the appraiser may indicate the level of maintenance required and report it on the appraisal, which will affect the marketability of the property.
Number of fireplaces
The Uniform Residential Appraisal Report (also known as the Fannie Mae Form 1004) — a form used during the appraisal process — includes a box where appraisers can tick whether a home has at least one wood stove or fireplace.
Although a homeowner can use a fireplace or wood stove to heat the house, it is typically considered an amenity and rarely adds value.
Mason Spurgeon, a Missouri-based certified general real estate appraiser since 2004, estimates that a fireplace may increase a home’s value by $500 to $1,000, if at all.
Age and condition of appliances
Older appliances in good condition that are clean and have been well-maintained may not be as desired by new owners as modern appliances. Still, if they are in good working condition, an appraiser will generally not deflate the value.
“Appraisers will even look for the date on the sticker of a water heater to verify when it was installed,” explains Rodriguez. Older appliances may not receive a high rating on an appraisal, but they will not impact the appraisal substantially unless they are not working or noticeably filthy.
It’s rare to hear a homeowner say there is just too much storage in a home. Rather, there is usually never enough.
Appraisers look at the storage — closet space, sheds, or additional space in an oversized garage — and then determine whether or not they add value. Appraisers will look past overcrowded closets, but they may also see clutter as an indication of a lack of adequate storage. Sheds are considered personal property if they are not built on a foundation and are often not accounted for during an appraisal.
Kevin Murray, a home appraiser serving Indiana, Illinois, and Michigan, says, “Typically, sheds do not add to value. However, sheds may add to the marketability of the house, but overall when comparing a similar house without a shed, there usually is no measurable difference.”
Landscaping and curb appeal
Landscaping can improve the curb appeal of a home and includes other items or landforms around your home, like fencing or outdoor water features.
Appraisers may give higher ratings for landscaping that provides energy efficiency to the house, or trees that are a safe distance from the home and are healthy. In a 2018 survey, 17% of Realtors® said that a landscape maintenance project recently resulted in a sale.
The cost to replace or repair a driveway can cost between $8 and $18 per square foot, depending on decorative colors and finishes. The average driveway is about 640 square feet, so at $10 per square foot, a new driveway will average about $6,400.
An appraiser will evaluate a driveway’s condition and the surface type — gravel, pavement, dirt, or something else.
If the house has a basement, an appraiser will likely consider whether the space is finished or not.
Like other updates and improvements, they may also consider the finishes and materials used and whether the space adds usable square footage and value to the property.
A standard appraisal of a property will likely take into account whether the electrical system works in the home. This might include checking outlets, lighting fixtures, switches, and whether the electrical lines running to a washer or dryer or hot water heater are adequate. For FHA loans, the electrical system “needs to be adequate for the type of structure, and in functioning condition.”
The VA also has Minimum Property Requirements (MPRs) that every VA appraiser must follow regarding electrical systems in a home. The VA states that “every home must have electricity for lighting and necessary equipment” and that mechanical systems “be safe to operate.”
Quality of windows
A single double-hung window can cost anywhere between $900 and $1,400, and a bay window can be as much as $4,400 per window installation.
Because of the cost, an appraiser will likely value a property much higher if the windows are new or in good shape. They will also evaluate any broken windows, damage to window sills, mold or mildew, whether windows operate smoothly, and overall wear and tear.
Ensuring there are no safety issues in a home is critical to an appraiser. They may look at damp areas, like under sinks or in bathrooms, for mold and mildew. They will examine the electrical systems for any potentially faulty wiring, or the plumbing system for leaks.
Rodriguez adds, “An appraiser will typically turn on the water in the kitchen, bathrooms, and other areas of the house to ensure it’s draining properly.”
An appraiser will also look for obvious signs of asbestos, lead paint, or other problems that may delay or postpone a sale.
Much like the building materials and craftsmanship in a home, the finishes — such as granite kitchen counters, high-grade bathroom fixtures, brass doorknobs, high-end lighting fixtures, or some other complementary hardware — can leave an impression that the home is well-cared-for and maintained.
Appraisers may not put as much weight on finishes as they do safety issues or a new roof, but quality finishes will still add to the overall marketability of a home and may be noted in an appraisal.
Custom build vs. cookie-cutter design
According to Rodriguez, appraisers use a quality rating of Q1 through Q6 in their appraisal when writing a report for the lender.
“Most often, they will give a custom-built home, with a unique design and a high level of workmanship and high-grade materials, a Q1, whereas a simple home plan with low-quality building materials may only receive a Q6.”
Outdoor spaces, including patios, fixed gazebos, decks, outdoor fire pits, and outdoor kitchens all add value to a home. According to the AIA Home Design Trends survey, 70% of respondents valued outdoor living spaces in 2021, an increase from 61% in 2020.
Locations around the country that see mild weather year-round may regard outdoor spaces more highly than in areas with long winters. But no matter where the property is located, an appraiser will very likely certify that they add to the marketability of a home if it’s well-maintained and in little need of repair.
Pool or sprinkler system (if applicable)
Heather McRae, Senior Loan Officer at CFS Mortgage in Chicago and a former appraiser, says that the value for upgrades and amenities is generally determined using a paired-sales analysis.
“For example, if home A and home B are the exact same floor plan, same size, closed around the same time, and have similar interior upgrades — but home A has a swimming pool, and home B does not — analyzing the price of each of these homes sold for, will give you an idea of what the market is willing to pay for a swimming pool.”
Other structures on the property
Sheds, a detached “man cave” or “she shed,” and auxiliary dwelling units, or ADUs — such as a detached garage with a rented apartment above, or a guest house — all add value to a property if well maintained.
Sales history of the house
According to the National Association of Realtors’ 2021 Profile of Home Buyers and Sellers, 96% of buyers who search online for detailed information about a particular house find the listing description (including the sales history) either “very useful” (80%) or “somewhat useful” (16%).
Appraisers will look at sales history as well as factor in any upgrades or improvements made since the last sale.
Similar homes in the area (comps)
Comparable sales, or “comps,” refer to homes that are similar in size, condition, and features to other homes located in the same area.
McRae explains why comps and the timing of an appraisal is so important. “Generally, appraisers are looking at comparable homes that have sold within the most recent six months.” They are allowed to go back 12 months, but an appraiser would need to explain why all comparables in the report sold more than six months ago. This can be quite common in rural areas due to lack of sales.”
So: What actually goes into the appraisal report?
The appraiser will visit your home during an appraisal to determine its overall condition.
According to Rodriguez, “The whole process should only take an hour or so. However, it can take up to a few weeks to hear back from the mortgage lender.”
After an appraiser inspects your home, they will compare the property to recent sales (usually under six months) in your area and come up with an appraised value.
There are times when an appraiser will simply do a “drive-by” and not enter the residence. This is called an “exterior only” appraisal. However, during this type of appraisal, an appraiser will draw up a floorplan of the property for the lender.
What’s in the report
The Uniform Residential Appraisal Report, also called a 1004 report, is the most commonly used report for single-family home appraisals.
Other forms exist for recording an appraisal for condos, mobile homes, exterior only appraisals, and commercial properties, but the 1004 is the most widely used. This report includes line items for variables like:
- Basic property location information, including address, borrower, owner, taxes paid, the lender, and any outstanding assessments.
- Race and the racial composition of the neighborhood (although this information isn’t used in the appraisal).
- Dimensions of home, condition of the home, utilities, adverse site conditions, such as encroachments, easements, or environmental conditions.
- General description. Foundation, basement or crawl space (if applicable), and both exterior description, interior materials and the condition, amenities, heating and cooling systems.
- The finished area above ground and below ground.
- Number of comparable properties close by.
- Indicted value of the property.
- A street map with the location of both the subject property.
- A sketch of the outside of the house with dimensions and calculations by the appraiser on how they arrived at the gross living area.
- Photos that show the front, back, and a street view of the subject property.
- Photos that show the front of each comp.
An appraiser may also use information acquired from publishers such as Marshall & Swift, as well as information from local builders to arrive at a reproduction cost per square foot. Appraisal management companies (AMCs) ensure adherence to federal appraisal requirements and help lenders provide unbiased property values.
Keep this in mind. An appraiser isn’t looking at the decor, furniture, or anything that’s not affixed to the property. They are only looking at the condition of what is permanently attached.
What’s most important is the age of the home, the square footage, lot size, location, view, the number of bedrooms and bathrooms, and the overall condition of the property. When you understand what goes into a home appraisal, there will be fewer surprises around the final report!
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