You have an accepted offer and you are in escrow! Even though you already have agreed-upon purchase price for your new home, and you are happy with everything, the buyer’s lender will require an appraisal. An appraisal is a contingency of purchase for the buyer if they are obtaining a loan. This contingency must be included in the purchase agreement. Unless the buyer is paying cash, they may still want to have an appraisal to ensure the value of the home comes in at purchase price. An appraisal will give you the true market value of the property, and pick up potential problems that you may not have noticed as you walked around the home.
Defects in Exterior of Your Home
The main reason a buyer has an appraisal is to ensure that there is enough equity in your new home. The exterior of the home is the first consideration. An appraiser will start by looking at the exterior walls and roof. Appraisals will take photos and will measure the home for square footage.
During the appraisal process, the appraiser will note any building defects. If the current homeowner has added unpermitted square footage, that will most likely NOT be included in the square footage of the home. Additionally, unpermitted additions may not be acceptable to a lender and they may not want to lend on the property.
If there has been a remodel on the home and square footage has been added, then have those approved building permits for the inspector to review and include in his report. Other requirements include that homes must have operable carbon monoxide detectors and smoke detectors in the home. Don’t be surprised if you see an appraiser taking photos of them!
Verifying the Lot Size
The size of the property and the surrounding lot will also come under review. There are sources for the appraiser to determine the lot size and they include tax records.
Homes that are larger may receive a better appraisal, but the condition of the property is taken into account. A well-maintained home is favored by all appraisers.
It is important for a seller to prepare for an appraisal, and have the home in tip-top condition! Ensuring that it is clean and presents well to the appraiser is as important as presenting it to a buyer!
How the Inside of the Home is Appraised
All appraisers are going to measure the interior of the home. They generally draw a floorplan and use those measurements to calculate the square footage of a home. An appraiser will also count and notate the number of rooms in the home.
The appraisal process is in-depth. Appraisers will consider the bathrooms and the kitchen. Appraisers will also note any upgrades or if these rooms are the original build. Recent upgrades to a home do add value.
The appraiser will look under sinks and notice if there are any leaks. Any signs of mold need to be resolved before the appraiser ever comes to the property.
Windows and doors are an essential part of the process. If they do not shut properly or are damaged, the problem should be fixed before the appraiser comes out. It is unlikely a lender will lend money on a property that has obvious signs of security issues.
Renovations and Home Improvements
In order to appraise the property, the current homeowner is often asked when the last time the kitchen was replaced. There is a good reason for doing so. A recently replaced kitchen can last 10 or more years and adds value to the home. When was the last time the roof was replaced? If it is new, then be sure to let the appraiser know that.
It is a good idea to have a list available of all home improvements which have been carried out during the past five years. That list should include new floors, replaced HVAC systems, and installed canned lighting and LED lighting. Also, if the home has any smart technology be sure to include that in your list of improvements, as smart technology adds value. Make sure that any warranties are available as this important to a lender.What Do Appraisers Consider at a Real Estate Appraisal?Click To Tweet
How to Prepare for an Appraisal
If it is your home being appraised, there are a couple of things that you can do to make the appraisal process easier and faster.
First of all, make sure that all areas of the home are easy to access including a key to the garage. You do not want to sabotage the appraisal and home sale by not being prepared. If the appraiser would like to enter the basement and there are piled up boxes on the stairs preventing entry can give the appraiser the wrong impression. In fact, he may even ask for them to be moved as they could, in his opinion, hide a defect.
Planning ahead and being prepared will further help to speed things up. Make sure your home is clean and tidy. The same things go for the garden and any exterior buildings such as the garage. When it comes to appraising a property first impressions really do matter.
It is a good idea to give the appraiser copies of any essential paperwork. He is likely to ask for copies anyway to complete his report.
Should the Listing Agent be Present?
YES! It is the listing agent’s job to be present for the appraisal. The listing agent should be providing the seller with guidance on what to anticipate with the appraisal. Other extremely important considerations include having recent comparable sales with “like” properties available for the appraiser. They appreciate it! Appraisers have access to the MLS and tax records so they can perform their own research. However, if the listing agent is prepared with recent comps to present to the appraiser, there may be one or two the appraiser missed out on.
Also, the listing agent needs to highlight features of the area as to why it supports the price of the home. Discussing the school district is imperative because certain school districts yield higher home prices than others.
The listing agent should:
- Advise the seller to clean the home thoroughly.
- Help the seller to prepare their home for the appraisal
- Ensure that there is are smoke detectors and carbon detectors per the state code.
- Be present to meet with the appraiser!
- Research and print out recent comparable active, pending and sold properties.
- Present their research to the appraiser and review each comp with them.
Reasons Your Home Did Not Appraise
The fear on the part of the seller is that their home will not appraise, and then the deal will fall apart! It doesn’t happen often, however it does happen!
There are some reasons why a home may not appraise.
- Adjustments for Lot: Lot size square footage is an important factor with an appraisal. Appraisers will look at the square footage of the lot, location, whether or not it is on a corner lot, or if it backs up to a busy street. All of these things affect value!
- Unpermitted Additions: Unpermitted additions are generally not included in the living square feet. Unpermitted rooms or sunrooms will not count in the living square footage of the home.
- Overpriced Home: A home that is priced over value and then goes into escrow at an inflated value will likely not appraise. It is imperative to price the home at market value with adjustments made for condition and presentation.
- Condition of the Property: If the home has obvious signs of deferred maintenance, it is likely that it will impact the value. It is important that any signs of deferred maintenance have been addressed before listing it for sale.
Dispute an Appraisal that Comes in under Value
You can dispute an appraisal if you do not agree with it. However, it could mean calling in an independent inspector and will cost you extra money. It is always best to get it right from the start. Also, it is best for the real estate agent to be present. An agent is often happy to help to present the reasons as to why the property should appraise at the purchase price.
You can also request another appraisal but the buyer may not want to pay for it, so that is another negotiation point. And there is no guarantee it will come in at the original purchase price.
The first and most important step is to hire a professional Real Estate agent so that they can prepare you on the entire home selling process. Preparing for an appraisal is just one step, but taking away the element of surprise in the home selling process reduces stress for all parties. Be sure to understand all the steps of the home selling process.
Find Other Valuable Resources for “What Appraisers Consider at an Appraisal” from Real Estate Professionals. Please share across Social Media if you found this article helpful.
Preparing for an appraisal is paramount and Bill Gassett has written an excellent resource on How to Prepare for an Appraisal. He discusses having the appraisal done early in the event an appraiser finds a defect that needs to be addressed. Other considerations include having the home thoroughly cleaned to ensure the home shows in its best condition.
Another detailed resource on 9 Steps to Prepare for an Appraisal has been written by Luke Skar. He has great points including the importance of being accommodating to the appraiser and how to judge repairs in your home by $500 rule (looking at each defect and take a $500 deduction for each one). Other important steps include making a list of features of the community which are beneficial to a buyer.
Paul Sian has written an excellent article about What to Know About the Appraisal Process. Paul explains to treat the appraisal process the same as a home inspection and preparation is key. If an appraisal comes in low, then the deal can fall apart, not always, but all parties have to come to agreement.
About the Author
Top Newport Beach CA Realtor Sharon Paxson has written the article “What Appraisers Consider at an Appraisal” With real estate experience since 2005, we welcome the opportunity to work with you and guide you through your real estate transaction.
We provide real estate service to our clients within the coastal Orange County CA area including Corona del Mar, Newport Beach, Newport Coast, Tustin and more! We welcome the opportunity to work with you.