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Appraisals are a professional third-party assessment of a home’s value. Whenever a mortgage is used to buy a home, an appraiser will need to assess the home’s value to ensure the bank is not lending the buyer more than the home is worth. For example, if a buyer offers $300,000 for a house but it appraises for $250,000, the bank won’t lend the total amount needed to purchase. For similar reasons, appraisals are also necessary when refinancing a home.
According to the Appraisal Institute, appraisers employ a systematic valuation process to determine an opinion of a home’s market value. Most appraisers report their findings on a standard Fannie Mae and Freddie Mac form called the Uniform Residential Appraisal Report (URAR). But what goes on that report?
Generally speaking, home appraisers look at the following things when evaluating a house:
- Condition of the home
- Location of the home
- Age of the home
- Size of the home and lot
- Quality of exterior features such as landscaping, swimming pool, patio
- Quality of roofing, foundation, and basement
- Quality of lighting and plumbing
- Number of bedrooms and bathrooms
- Interior design and features of the home
- Signs of water damage, infestation, etc.
- Home improvements
- Safety features
What appraisers look for in a house
Let’s review the different aspects an appraiser looks for in a house, divided into four sections: physical condition, improvements, neighborhood, and site.
The standard appraisal report evaluates general property characteristics, including building materials and the condition of structural features. Under the sales comparison approach, an appraiser compares the home’s features to those of similar properties that have recently sold.
For example, when comparing two similar homes, an appraiser may assign additional value to a home with a two-car garage when comparing it with a similar home that has a one-car garage.
During the appraisal appointment, an appraiser will look at the physical condition of the property in four different areas: general property characteristics, interior, exterior, and the foundation/attic.
General property characteristics
- Size details: Square footage of the structure’s living area above grade, the number of rooms, bedrooms, and bathrooms
- Garage and driveway: The number of cars the garage can house, detached or built-in, and driveway surface type
- Accessory dwelling unit: Whether zoning allows the ADU, how the ADU impacts the marketability or value of the property
- General qualitative assessment: Overall property condition, whether the home conforms with neighborhood standards
The interior characteristics pertain to everything that you find inside the house. This covers everything from the aesthetics to the conditions of the systems that keep your home running, such as the HVAC system and water heaters.
- Heating and cooling: System type and condition
- Floors: Material and condition
- Walls: Material and condition
- Trim: Material and condition
- Appliances: Presence and type of appliances, such as a refrigerator, range, oven, and dishwasher
- Energy-efficient features: Examples include energy efficiency certification, tankless water heaters, and insulated ducts
The exterior characteristics pertain to everything outside the house. These features aren’t just a matter of looks, but also of quality, condition, and safety. For example, if your home’s roof desperately needs to be replaced, you can expect that to lower the appraisal value.
- Exterior walls: Material and condition
- Roof: Roof type, material, and condition
- Windows: Window type and presence of screens and insulation
- Outdoor amenities: Presence of pool, outdoor fireplace, or other amenities
Foundation and attic
The last physical characteristics category pertains to the actual foundation itself, which can become a safety concern when improperly maintained or in need of repair. Appraisers will also take a look at the attic and the basement. These spaces can boost appraisal value if they are finished or add more livable square footage to the home.
- Foundation: Foundation type and condition
- Basement: Whether the basement is finished or unfinished
- Attic: Whether the attic is finished or unfinished
Home appraisers also consider home improvements, upgrades, and additions
Although the age of your property will affect your appraisal value, the appraiser also wants to see if you have made upgrades to the house. In that way, a house built in 1970 and not updated will usually appraise for less than a house built in 1970 but renovated in 2015. Not every renovation will add value, however.
Improved kitchens, bathrooms, and major components carry the heaviest weight
A recent remodel could give you a value bump, says Mason Spurgeon, a certified general appraiser and owner of Spurgeon Appraisals. “Updated kitchens and bathrooms tend to have a pretty significant impact on the value, as these are the areas in which a buyer would spend most of their money if updates were needed.”
“A lot of times an appraiser will come and look at an air conditioner, and they’ll see the age on it, or will check the permits,” says Paul Fonseca, a top-selling real estate agent in Fort Myers, Florida. “But it’s different when you tell them, this was just put in, and it’s a Trane air conditioner, and it was $7,000. And we just put a new roof in last year, and it was this much money.”
Features such as in-ground swimming pools and porches may not add much value
An in-ground swimming pool adds some value, but it’s depreciated value because of the maintenance involved, says John Huston, a professional appraiser in St. Petersburg, Fla., who serves three counties and has appraised more than 3,800 properties since 1999.
Put another way, spending $120,000 on an in-ground pool doesn’t guarantee a greater appraisal value compared to your neighbor’s $35,000 pool. “If you go to resell, you’re not going to get $120,000 for your pool,” Fonseca said. “Each of you has a functioning pool. It doesn’t really matter who spent more money.”
Additional exterior features such as porches and patios don’t always add a lot of extra value, Spurgeon says. However, this can differ depending on what area of the country you live in and if comparable properties in your neighborhood have this feature.
Neighborhood: Location holds heavy sway over your home’s value
While Fannie Mae guidelines don’t require appraisers to rate or judge a neighborhood, appraisers analyze objective data about the home’s location and any factors that could affect value and marketability. These data include:
- Location: Whether the area is urban, rural, or suburban; growth in the area; how built-up the area is
- Desirability of the neighborhood: Its proximity to employers, services, and public transportation access
- Market conditions: Whether prices and demand are increasing or decreasing, along with the marketing time of recent home sales
Site: Appraisers consider both on-site and nearby property characteristics
Appraisers look at the size, shape and topography of the lot. The appraiser will also note amenities such as street utilities and vehicular access. Typically, the appraiser will compare the presence or absence of these utilities to the rest of the nearby area. For example, if you have a shared driveway but live in an area where everybody has shared driveways, your appraisal likely won’t be penalized for it.
- Zoning: The zoning classification and whether the property fits legal use
- Special hazards: Whether special (including environmental) hazards exist and whether the hazard affects the home’s value or marketability
- FEMA flood zone: Whether the home sits in a FEMA flood zone
- Off-site improvements: The observation of streets, alleyways, sidewalks, lights, curbs and gutters
- Adverse site conditions: Any other conditions related to the site that could affect the home’s marketability and value
FHA and VA appraisals
Suppose a buyer is utilizing a Federal Housing Administration (FHA) loan or loan from the Department of Veterans Affairs (VA loan) to finance their purchase. In this case, their appraiser will need to look for specific requirements mandated by the Department of Housing and Urban Development (HUD) and the VA.
According to Bethany White, a top Virginia Beach agent with over 13 years of experience, FHA appraisal requirements tend to be stricter than conventional loan appraisals. In addition to providing an opinion of the home’s value, FHA appraisers also evaluate the property for health and safety compliance.
The following are some of the FHA appraisal requirements that need to be met before closing:
- Appliances included in the sale must be operational.
- The attic should be insulated with no leaks or damage. There also needs to be adequate ventilation in the attic space.
- The crawl space must be dry with no water intrusion or standing water.
- The land around the structure must have proper grading and drainage.
- The electrical system needs to be adequate for the type of structure and in functioning condition.
- The home must have a solid foundation.
- Heating and cooling must be operational.
- Chipped and peeling paint needs to be addressed, particularly when there’s potential for lead paint (with homes built prior to 1978).
- The plumbing must be functioning properly.
- The roof must have at least two years of life expectancy.
- The home must not show evidence of termite infestation.
If the home doesn’t meet all of FHA’s appraisal guidelines, the homeowner would need to ensure that all items called into question are repaired before settlement. “The appraiser has to go back out and sign off on it,” says White.
The process is very similar for VA loans. Appraisals will need to ensure the VA’s requirements are met, most of which are similar to the requirements of the FHA loan.
Appraisals for refinances work the same as those for home sales
Whether you’re refinancing or purchasing, the general valuation process remains the same from an appraiser’s point of view. With either type of appraisal, the appraiser reviews the same property features and uses the same URAR form used for purchase loans to determine a home’s value.
If you’re refinancing, your lender will order the necessary appraisal for your loan program. In some cases, the lender may not request a full appraisal. A bank’s underwriting guidelines may only require a limited appraisal where the appraiser doesn’t visit your home, such as a drive-by or hybrid appraisal.
“[The appraisal type] really depends on whoever is doing the refinance,” White explains. “Your bank might do it a different way.”
Appraisers don’t consider moveable features or decor
Although real estate agents appreciate neutral decor to help buyers imagine their belongings in a home, a home’s general aesthetic is not high on an appraiser’s list for assessing value.
According to Huston, “A general rule of thumb is, if it’s nailed down and you can’t take it out, then it’s considered part of the house.”
An upgraded microwave doesn’t add value, for instance, because it’s moveable. Neither does a utility shed or a hot tub — although they might add marketability to the home because you’ll likely include them in the sale.
If you have personal property you’re selling with the house, such as a boat for use with an attached dock, that’s something the appraiser should know.
Tips for a successful home appraisal
Now that you know what an appraiser looks for, you can prep your home to ensure a successful appraisal.
First, tidy up. Appraisers are trained to look past clutter and disarray, but you’ll still want to put your best foot forward. Jolene Jacobs, a top agent in Royal Oak, Michigan, tells clients to prepare and deep-clean their home like they would for a prospective buyer.
“Make it show just like when we had it listed,” Jacobs advises.
Here are additional steps you can take to prepare for your appraisal appointment:
- Gather relevant paperwork. Provide copies of documents such as the most recent real estate tax bill and any homeowners’ association or condominium covenants and fees.
- Compile a “brag sheet” of major home improvements and upgrades. Include the date of installation, cost, and permit confirmation (if available).
- Keep receipts and invoices handy. “It’s very difficult to notice the difference between $15,000 cabinets and $60,000 cabinets if you don’t know what you’re looking for,” says Chicago agent Santiago Valdez.
- Make the home accessible. Clear away stacks of boxes and other impediments that could block access to a space. Don’t forget crawl spaces and attics.
- Fix minor gaffes. Repair chipped paint on the baseboards and adjust squeaky hinges.
What to do if an appraisal comes in low
If you’re disappointed in the appraiser’s value, you have the option to contest the findings. It’s rare an appraisal ever goes up after coming in low, Jacobs says. However, you can offer additional data to challenge the report.
According to the National Association of Realtors, appraisers can only discuss the details of a report with the client. Since the appraiser’s client is typically the mortgage lender, you would need to contact the lender with a reason why the appraiser should reexamine the value.
When would an appraiser be most likely to reconsider the value of a home? Jacobs says you’re most likely to see an adjustment if there’s an egregious error in material data. “We’ve found where appraisers have missed some very specific [factors], called a three- bedroom house a two-bedroom house,” says Jacobs. “And a third bedroom adds a lot of value.”
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