5 Reasons Your Real Estate Appraisal Matters
Getting an appraisal back within a reasonable time frame can make or break a deal. If you’re in a rural area or in an area where the real estate market is booming, you could wait up to 3 weeks or more just to get the appraisal results. This can be even more frustrating if the appraised value comes in low or repairs are needed.
Right now there are even some areas in the country where appraisers are flat out declining appraisal orders because they know they do not have the capacity to turn the appraisal report around in a timely manner.
When the purchase contract states that the deal needs to close within 45 days, and it takes 40 days to get appraisal results, expect an extension to the purchase agreement.
If you’re getting a mortgage, the property needs to meet some basic standards for the lender to give the thumbs up on acceptable property condition.
Common property condition issues that pop up on appraisals and cause issues: mold in the attic or basement, peeling paint on the outside of the home or garage, trip hazards, broken windows, and missing fixtures.
Anything noticeably wrong with the property is likely to be pointed out on the appraisal report including photos. When there are repairs noted on the appraisal the seller will need to complete those repairs prior to closing, and the property needs to be reinspected by the same appraiser to confirm the requested repairs have been made.
When coming up with an opinion of value, the appraiser selects recently sold homes within the market that are similar in size/condition/location/amenities.
The appraiser then compares those homes with the subject property and makes adjustments based on differences and similarities between the homes.
For example: if the subject property is a 3 bed, 2 bath ranch on .5 acre, the appraiser would look to include 3 bed, 2 bath ranches that sit on a .5 acre lot. The appraiser would not be including a 3 bed, 2 bath condominium.
It doesn’t have to be identical and size and condition, but it does need to be the same property type. Unique properties can be very difficult to finance. If there are no similar properties sold within a reasonable distance and time frame (underwriter discretion) the deal could be dead. There is also a limit to how much an appraiser can make adjustments on value based on the differences in homes.
If the adjustments made are too high, the comparable property used could be considered irrelevant or unacceptable and would need to be replaced by a better comparable if possible.
For some buyers the appraised value can have an impact on their ego.
Let’s say you get under contract on a house for $300,000 and it appraises for $380,000. There might be an increased warm and fuzzy feeling knowing you got a good deal. Another confidence booster in a case like this is that if you’re going to be paying private mortgage insurance (PMI) due to a low down payment, you may be able to refinance in a year and then use the new appraised value to drop your PMI (which could save you hundreds of dollars a month).
Knowing that you have instant equity in the home that you already loved to begin with can really add a nice cherry on top.
The collateral (the house) used to secure the mortgage must comply with lender guidelines.
One of the biggest issues when talking about compliance has to do with finding out if the home is a non-warrantable condo (does not apply to single family homes). If the property is a condominium the appraiser will reveal information pertaining to the number of units that are owned by 1 entity, number of units that are not complete, and other important information about the condo that could cause issues. [more on non-warrantable condos here]
Another fairly common issue that can come up as a compliance issue is number of acres the property sits on. Depending on what type of loan program you’re seeking, there may be an issue with giving any value to acreage beyond 10-20 acres. For someone buying a 50 acre property, this can be a deal breaker if most of the value is in the land.
If the appraisal states subject property was recently was sold, there could also be flipping restrictions depending on what type of loan you’re seeking.
The appraisal can clearly make or break the deal in several unique ways other than home value.
When we go out to a home to do an inspection, there are 2 main things we need to do: measure the GLA (gross living area) and take photographs of every room. Here are some reasons why we measure:1. We are required to measure by the lender.It is a requirement that any appraisal for a federal loan include a sketch of the subject property with labelled rooms. 2. Double check that GLA and county records match.This is usually not a problem with homes built within the last 10 years, but if there is a large discrepancy between the appraiser's measurement and county records, it can be a flag for additions (unpermitted or sometimes permitted additions that have not been added to county records).3. Does the floor plan flow?By measuring we are able to determine things we may otherwise miss. For example, when measuring a home that has an addition, we determined that the master bedroom was only accessible by walking through another bedroom. Doing a sketch and labeling the floor plans, helps us notice these things.
The appraiser won't know what your home is worth the second he walks in the door...What can you do to help the appraiser? Here are 4 things you can do:
1. Prep your space - declutter, dust, and mop beforehand to show your home in its best light. Also, inform all occupants that an appraiser is coming so everyone is up and out of bed! Appraisers don't judge cleanliness but a neat, organized home might help you.
2. Get your paperwork in order - gather all the information you have about the house and have it ready for the appraiser. Have a list of major improvements as well as detailed info about the age and condition of the roof, HVAC systems, and major appliances. This will be very helpful!
3. Don't put too much stock in home improvements - We're sure your brand-new kitchen is stunning, but don't be surprised if it doesn't proportionally raise your home's market value. If you spent $50,000, you're likely to see only a fraction of that returned in value.
4. Be honest - Before listing, make sure you and your realtor take a realistic look at what your home actually offers. It might be tempting to pad some square footage here and there. However, your appraiser won't be fooled, so it's best to always be truthful.
10 ways to boost the value of your home.1. Paint Your Home
Choosing the right shade of paint can actually help you sell your home. A current color scheme adds to its appeal and can prompt a faster sale.
2. Clean Up The Lawn
Another great technique to boost your home value is cleaning up the lawn. Make sure the lawn is mowed, raked, and trimmed. The first thing potential buyers see is your curb appeal.
3. Create Space
A trick of the trade to help you get top dollar when selling your home is creating space. Anything that opens up the space will make the home appear bigger and brighter.
Make sure your home feels light and airy. A room full of light feels bigger.
There are many techniques you can use to make a room lighter:
Paint the ceiling whiteChoose a color scheme of lightMaximize natural lightKeep window dressing light and simpleOpen up shades to let light in5. Flooring
Consider adding wood, tiles, or natural stones for flooring options to add value to your home. A quick way to boost the value of your home is by adding hardwood floors. The number one thing buyers are frequently looking for are hardwood floor and it can help sell your home faster.
6. Power Wash Paths And Siding
Give the outside of your home an uplift by power washing the paths and sidings. In addition, regular pressure washing can prevent costly future repairs and renovations. Using a power wash will help remove mold, mildew, and algae from your home.
7. Update The Bathrooms
Make sure to fix any damage walls, cracked tiles, and add fresh paint. Updating an old bathroom will help you to sell your home faster and avoid price negotiations.
8. Give Appliances A Facelift
Want to get as much money as you can from your home? Make sure all the appliances are updated. The appliances must be stainless steel.
9. Clean Home
Make sure your home is clean. Get rid of limescale and remove all clutter. If your home is dirty, buyers will have a hard time envisioning themselves in the home.
10. Stage Home
Appearance is everything. Successfully staging is the key to selling your home quickly and making each room appeal to homebuyers.
Here Are Just a Few Examples:
Estate PlanningPlanning for the future of an estate or collection is important. An appraisal can provide a valuable tool so that owners can plan in advance for tax, distribution or donation. RefinancingMost home buyers know that they need to get a home appraisal when they apply for a loan to purchase a property. However, an appraisal will also be required when a home owner wants to refinance their loan at a lower mortgage rate. Banks will order another appraisal to ensure what the value of the property is.PrelistingSome homeowners order a home appraisal prior to putting their houses on the market to determine the best listing price. This is a great idea regardless of whether the homeowner is or isn't working with a real estate agent to sell his/her property.DivorceMost state courts require a recent appraisal to determine a home's fair market value. In a contested divorce, spouses often want their own separate appraisals therefore two appraisals will be done. If the two appraisers reach different values, a judge will look over both appraisals to make his/her final decision.
A home appraisal consists of these three components:
1. A Physical Examination of the Property- The physical inspection at the house may take an appraiser as little as 30 minutes to perform or could take as long as two to three hours. This depends on the size of the house, known as Gross Living Area (GLA) and also the design of the home. An artsy Contemporary style home takes longer to measure than a standard rectangular Colonial home. Physical visits are usually brief when a home is in average to very good condition. However the inspection can take a bit longer if the property is in fair or even poor condition as there are more things the appraiser must observe and notate.
2. Selecting Comparables - Next, finding the most recent/similar sales that are located approximately within a mile of the property, and that have closed within the past 6 months, are what every appraiser is seeking!!! These properties are used to establish an accurate opinion of value. The appraiser will locate the most appropriate and comparable sales to be included in his appraisal report.
3. Completing The Appraisal Report - After a thorough physical examination of the property and locating the best comparable sales available, the appraiser will start entering all of this data into a standard appraisal report form. Once all of the data is entered, the appraiser evaluates all of this information so he can arrive at his final estimate of market value. Fortunately, almost all residential properties require only short form reports, usually 10 pages or less. Appraisers often can complete a report in about 5 hours. Depending on the appraiser's workload and on the complexity of the property, an appraisal report should be completed and delivered to the lender in about seven to ten days