If you’re selling your home, then you’ll likely face a home appraisal. It’s a process that determines what your property is worth, and affects how much you can sell the house for. Getting a good appraisal is key for many homeowners, so it’s important to know what factors could jeopardize the results.
Here’s a closer look at how the process works, things that can hurt a house appraisal, and what happens if the appraisal turns out to be lower than expected:
How Does a Home Appraisal Work?
The home appraisal is an inspection that determines how much a property is worth. A licensed, third-party appraiser inspects the property and compares it to similar homes in the area to establish its fair market value.
In a property sale, the seller and their real estate agent can list the home for as much as they want, so the buyer’s lender needs to verify that the home is actually worth that amount. The home’s value affects how much money the lender is willing to let the buyer borrow, since the property will serve as collateral for the mortgage. If the buyer ends up defaulting on the loan, then the lender can sell the property to get its money back. But if the property is worth less than expected, then the lender might not be able to recoup its losses — which is why it’s crucial for the lender to know how much the collateral is worth.
Appraisers don’t just benefit the lender. A high appraisal can be good news for the seller, because they are more likely to sell the home for an amount that’s close to their asking price. For the buyer, a high appraisal means they are getting a good deal.
However, a low appraisal can mean trouble because the lender won’t offer a loan worth the full asking price. This could jeopardize the sale if the buyer can’t make up the difference out of pocket. The buyer also might be scared off from purchasing a house that’s listed for more than it’s worth.
The appraisal fee can vary depending on the size of the home, but costs an average of $300 to $700. In a sale, the lender typically orders the appraisal, and the buyer pays for it as part of their closing costs.
During an appraisal, the appraiser inspects the condition of the property and makes note of any improvements or renovations that the homeowner has done to increase its value. The appraiser then creates a report stating the fair market value of the home, based on the following factors:
- Age of the home.
- Square footage.
- Size of the property.
- Number of bedrooms and bathrooms.
- Age and condition of systems and appliances.
- Any visible defects.
- Any health or safety hazards.
- Structural integrity of the home.
- Any major improvements or upgrades.
If the appraisal is being conducted for a property sale, neither the buyer nor the seller may attend, which helps keep the negotiations fair.
Finding the Right Appraiser
A good appraiser will perform a fair, accurate evaluation of the home and compare it to similar properties in the area. Here are some factors to consider when you’re looking for an appraiser:
- Experience: Making sure that your appraiser has at least several years of experience under their belt could go a long way in getting the most accurate appraisal for your house.
- Expertise: It can help to look for an appraiser who specializes in similar properties. Additionally, they should have a firm grasp of market conditions.
- Local knowledge: An appraiser who’s familiar with the area is more likely to provide a fair result because they have worked with other homes nearby.
- Referrals: You could ask your real estate agent or personal network about any appraisers they’ve had good experiences with.
- Online reviews: Frequent complaints or other bad reviews of an appraiser can be a red flag. Conversely, great reviews are usually an encouraging sign.
You don’t need to go with the first appraiser you find. Make sure to talk with a few different ones, and compare their experience and certifications. If you need help searching for appraisers, the National Association of Realtors offers a directory that can help you find accredited appraisers in your area.
Factors That Can Hurt Your Home Appraisal
There are certain factors that could lower your appraisal. Here are some of the ones you can control to help ensure your home isn’t undervalued.
Daily life causes inevitable wear and tear on a home over time. Failing to address any issues could result in a lower appraisal — and may cause problems for anyone living in the home.
When you’re preparing for an appraisal, you should keep several areas in mind. Make sure that the home’s plumbing and electrical systems are in good shape. Additionally, malfunctioning appliances and major structural issues, such as a roof that needs repair, are red flags to appraisers. They will also be looking for any health and safety hazards, which can signal that the home hasn’t been well cared for.
Note that certain repairs — particularly when it comes to plumbing and electrical wiring — should be left to the professionals. These jobs need to be handled correctly, or they could cause additional problems down the line.
In general, any visible defects or older construction materials can be part of what hurts a home appraisal. For example, if your home was built before 1978, there’s a serious risk of lead paint, which is a health and safety hazard. Older homes could also be perceived as less energy-efficient if the windows and doors aren’t modernized. And if other pricey areas to repair — like the roof or siding — haven’t been updated, your property could get a lower appraisal.
If you’re tempted to sweep some flaws in your home under the rug, you may want to think twice about it. You won’t easily fool an experienced appraiser, who can see through shoddy repairs or cover-ups. Also, trying to hide something could make the appraiser suspicious about other underlying issues — and negatively affect your home appraisal.
While there are some things you can do to prepare your home for the appraisal, there are also issues outside of your control that could impact the result. Here’s an overview of other factors that the appraiser will consider.
The value of your home is partly based on market conditions. So, if housing prices are on the rise in your area, then your home is likely going to be appraised at a higher value. But if the housing market doesn’t favor sellers, then you might not be able to fetch a good price for your home. For this reason, it’s advisable to monitor market conditions if you’re thinking about selling.
The home’s location
Where the home is located can affect the appraisal in different ways. If it’s in a rural area, then the appraiser could find it more difficult to assign a value because there are fewer comparable homes nearby. Similarly, an appraisal can get tricky if the home is considered unique for its neighborhood.
While you can’t do anything about the location of your home, you can improve its curb appeal. This refers to how your home looks when the appraiser — or a prospective buyer — steps out of their car and takes their first glance at the home. Upping your home’s curb appeal by investing in good landscaping and improving the home’s exterior could help increase its appraised value.
Determining the fair market value of your home involves comparing it to similar homes in the area. This is where preparing for the appraisal by searching public records for home sale prices in your neighborhood can come in handy. While you may think you have the nicest house on the block, the value of your property could get driven down if comparable homes in your area sold for much less than what you’re asking for. Thorough research helps temper those expectations.
Currently, homebuyers tend to prefer open layouts to the more closed-off layouts seen in homes built in the 1980s and earlier. Open layouts connect the main living areas to offer more natural light and airflow compared to homes that divide these spaces with walls.So, having an older home with a closed-off layout could hurt your appraisal. Some homeowners may opt to knock down some walls to modernize their living areas and increase the value of their home.
The buyer’s mortgage
The type of mortgage that the buyer is getting influences what the appraiser will be looking for. Government-backed loans have a different set of criteria for home appraisals compared to conventional loans, which is important to know beforehand.
For example, mortgages insured by the Federal Housing Administration require the home to be free of pests, allow access to the attic, have appropriate safety measures such as handrails for stairs, and more. Other government-backed loans, such as those backed by Veterans Affairs and the U.S. Department of Agriculture, have their own guidelines, so be sure to get on the same page with the buyer ahead of time.
The Fair Housing Act prohibits discrimination in housing due to race, color, religion, sex, national origin, disability, or family status. Despite this, there are cases where these factors end up influencing the home appraisal.
“Unfortunately, appraisal bias is still one of the ‘dirty secrets’ of the housing industry,” says Lee Davenport, a strategic coaching advisor at Real Estate Bees, a platform for real estate professionals, in Atlanta.
According to Davenport, appraisal bias occurs when a homeowner’s property is undervalued due to a protected characteristic. She says that appraisers might not be aware when they’re devaluing a property based on the homeowner — which is why this practice is often referred to as implicit bias.
If you believe that you’ve been discriminated against, Davenport suggests that you get a second opinion from a different appraiser. You can also report the incident to the U.S. Department of Housing and Urban Development’s Office of Fair Housing and Equal Opportunity.
What Happens if You Get a Low Appraisal Value?
Despite your best efforts, you could still end up with a lower appraisal than expected, whether it’s due to the housing market, where you’re located, your home’s layout and condition, or other factors. Regardless of the reason, there are strategies you can try to avoid lowering the home’s list price.
Here are several ways to turn a low appraisal around.
Show proof of renovations or offers
Unless you provide hard evidence, the appraiser won’t always know that you’ve renovated the home. It can help to offer receipts or other documentation that prove you’ve invested in increasing the home’s value.
Another document that can help boost the appraised value of your home is a list of offers. If you’ve already received multiple offers for the home, let the appraiser know that your property is in demand.
If you aren’t in a rush to sell and have cash on hand, you could take your home off the market and renovate to increase its value. Once the appraisal is complete, you’ll have a better idea of what areas in your home to focus on for the next appraisal. Beneficial repairs and upgrades may include:
- Replacing old windows and doors to make the home more energy-efficient.
- Repairing any damage to the roof and siding.
- Remodeling the kitchen and bathrooms using newer materials.
- Updating the plumbing and electrical systems.
- Replacing the heating, ventilating, and air conditioning system with newer, more energy-efficient technology.
- Updating major appliances.
- Knocking down walls for a more open layout.
Again, keep in mind that any changes affecting the safety or structural integrity of the home should be handled by trained professionals. It might cost more money, but professional work helps ensure that the repairs or renovations will be done well and truly increase the value of the home.
Appraisals aren’t an exact science, so the results can vary depending on the appraiser. You could appeal the appraisal and have it reviewed to make sure that the appraiser considered all relevant factors. To appeal an appraisal, you should contact the buyer’s lender and submit documentation regarding comparable properties, along with an explanation of why they’ve been valued higher.
You could also ask for a second appraisal, but you must be willing to foot the bill, because it’s unlikely that the buyer would agree to do so.
Appraisals are an important tool for buyers, sellers, and lenders, which is why getting an accurate one is crucial. If you’re selling your home, you should make sure that the property is in good condition if you want to get the highest appraisal possible. By being prepared for the process, you could put yourself in a better position to get an accurate and favorable evaluation when the appraiser comes to visit.