What Hurts A Home Appraisal? Most Common Factors

One nerve-wracking aspect of selling your home is waiting for the results of the home inspection. And it can be traumatic when you’ve accepted a terrific offer from a prospective buyer, but their inspector comes back with a lengthy list of problems and necessary repairs.

Either it’s going to cost you a bundle to make the fixes, you’ll have to agree to “allowances” that will cut into the profit you expected to make, or the sale is going to fall through.

Of course, most sellers try to repair all of the obvious problems with their home before putting it on the market. Many also do an extra deep cleaning or some last-minute touch-up work after the sale, but before the inspector will be coming through.

What most don’t do, however, is pay the same attention to the condition of their house when a scheduled home appraisal is about to take place.

They should. Some factors that may hurt a home appraisal can be addressed pretty easily.

What Is a Home Appraisal?

Here’s the short answer: it’s an unbiased opinion evaluation of your home’s value, delivered by a licensed or certified appraiser who’s familiar with the area where the house is located.

Here’s the longer answer: it’s a crucial part of most home-buying processes – and it can have an even larger impact on the final selling price than the home inspection will.

Home appraisals are generally performed in connection with two types of financial transactions.

  1. Mortgage refinance: A bank or other lender will almost always insist on a home appraisal before refinancing your loan, because they don’t want to lend you more money than the house is worth. An appraisal protects them from losing money, if the home goes into foreclosure and has to be resold. The only refinances which don’t require appraisals are ones done through special government programs, which most people don’t qualify for.
  2. Home purchase: A mortgage lender has the same concerns, and will require a home appraisal before giving final approval for the buyer’s home loan. The only time an appraisal won’t be necessary is during a cash transaction, because there’s no lender who needs protection.

In both cases, the appraisal is ordered by the lender and the cost is paid by the buyer (or the refinancer). In both cases, the actual appraisal takes about an hour (although the paperwork can take days) and usually costs between $300 and $600.

The processes are almost identical, but we’re primarily concerned with appraisals connected with home sales. That’s because the appraised value of a home can make the difference between moving forward to the closing, or being forced to put the house back on the market.

Why? If a home appraises for less than the agreed-upon selling price, the mortgage won’t be approved. Either a lower sales price will have to be negotiated, one of the parties will have to pay the difference in cash, or the sale will fall through.

Obviously, a lot is at stake.

What Factors Go Into a Home Appraisal?

There are a lot of them, and most are detailed on what’s called a Uniform Residential Appraisal Report. Appraisers are only required to use that form for loans approved by Fannie Mae or Freddie Mac, but most use it for all of their home appraisals.

The factors considered by home appraisers can be divided into two categories.

Factors the Seller Can’t Control

Location

Unless you plan on renting one of those companies that moves homes from one location to another with huge trucks, your home is located where it’s located. There’s nothing you can do to change that.

Location is one of the biggest factors the appraiser will consider, because – as you certainly know – it’s one of the biggest factors in a home’s value. Homes in nicer neighborhoods are generally worth more than those in rundown ones. Homes in big cities or major suburbs are usually worth more than those in remote, rural areas. Proximity to shopping, quality of the school district, crime rate and other “lifestyle” considerations all play into a home’s appraised value.

Details matter, too. Is the neighborhood only zoned for residential use, or can businesses or industries move in? Are the roads well-maintained? Are the homes in the neighborhood all single-family, owner-occupied houses, or are there rentals, apartments or even abandoned properties there as well? Is the house on or near a busy street, or is it located in a quieter area?

Age, Layout, Construction and Design Style of the House

You can’t change when your home was built, and if a sale is pending, you’re certainly not going to start remodeling it or changing its floor plan.

Older homes are more likely to come in at a lower appraised value, simply because they’re less likely to require major repairs in the near future. (Age can sometimes be a plus, though; well-maintained houses in historic districts are quite valuable.)

The type of construction materials used to build the home, particularly the foundation and roof, will factor in. So will recent upgrades (like energy-efficient windows, solar panels, a new roof, a pool or a walk-in closet) that boost the home’s value. Less-important ones (like an indoor sauna or state-of-the-art wine cellar) probably won’t.

Overall, appraisers will be looking at the functionality of a home’s layout and design, not how many steps there are between the master bedroom and bath. But if the floor plan or design finishes are clearly outdated and largely undesirable, or if the HVAC system is outdated (or worse, if there isn’t one), that will probably be reflected in the home’s reported value.

Even more importantly, the appraiser pays close attention to numbers. The number of bedrooms, the number of bathrooms, the total usable square footage in the house, the total size of the lot and the size of the garage are among them. Those are keys to the next big factor in the appraisal.

Comparable Sales

The best way to judge the “base value” of a home is to compare it to similar homes in the same neighborhood which have been recently sold. And the best way to look at these so-called “comps” side-by-side is to compare the numbers we just mentioned. If a home in the same block, with the same number of bedrooms, bathrooms and square footage, just sold for $300,000 – that’s an excellent starting point for an appraiser.

The Local Real Estate Market

Here’s one final factor you can’t control, unless you simply decide not to sell during a downturn: how hot the real estate market is in your area. During a seller’s market, demand rises and prices naturally follow. During a buyer’s market, homes will often sell for relative bargains because there are so many houses on the market to choose from. Those realities will affect the value of your home – because an appraisal isn’t a theoretical exercise. It’s done to determine how much a home is worth when the appraisal is being performed.

All of those details will be “baked in” when an appraiser prepares a report. But there are other variables that you can massage just before they show up.

Factors the Seller May Be Able to Control

Curb Appeal

No matter what you may think about the results of appraisal you’ve had done, the people who conduct them are human. They’ll start to form opinions as soon as they pull up.

So appearances matter. And your first step is to make sure your home’s “curb appeal” – how appealing it looks from the outside – is up to par.

The lawn should be mowed (or the snow should be shoveled), the trees and shrubs should be trimmed or pruned, anything cluttering up the lawn should be removed, outdoor lighting should be working.

You’ve already sold the house, so you probably won’t be giving it a new paint job. But what about the details you forgot about when getting ready to sell? Repainting the front door or garage doors, if they need it, can present a more favorable first impression; so can replacing an old mailbox. Even planting some colorful flowers (to replace the ones you might have planted just before the “For Sale” sign went up) can help.

What’s the big deal? It’s simple: you want to make a first good impression. The appraiser won’t be doing a home inspector’s top-to-bottom, detailed inspection of every system, nook and cranny in the house. Appraisers look for major problems and concerns, of course, but they also want to know how well the home has been maintained. If you’ve done all the right things outside, you’ve probably done them inside as well.

When an appraiser looks at your house after getting out of the car, and immediately thinks “Hmm, certainly looks like they do a nice job taking care of this house” – the first battle has been won.

A Well-Maintained Interior

The war continues indoors; keep the phrase “pride of ownership” in mind and you’ll know what to do.

You may have thought that your days of cleaning the house were over when you got a copy of the signed purchase-and-sale agreement. If so, that was short-sighted. The home should be sparkling clean when the appraiser opens the front door; that doesn’t mean repainting the interior, but a deep clean is a good idea. Even if you’re packing, the boxes and closets should look organized and neat.

Don’t neglect small things like the heating and cooling vents, or the drip pans on the stovetop, either. The appraiser may be taking notes on the type of HVAC system and kitchen appliances you have, but he won’t be taking them apart. If they look like they’re well-maintained, he’ll probably assume they have been. If there’s a mess, he might assume that regular maintenance work has been neglected, or even worse, that the mess is hiding something insidious.

On the off chance that you put off necessary maintenance, get it done before the inspector and appraiser arrive. They’ll notice it otherwise – and you’ll end up paying more for your negligence (you’ll have to fix it for the buyer, and the value of your home might drop because of it) than you should have.

And if there are major repairs that haven’t been done (to the roof or foundation, for example), get a “friendly” estimate ahead of time and give it to the appraiser. You may end up being penalized less than if he had to make his own guess at how much the repairs would cost.

Being Available

Since it’s your home, you have a right to be present while the appraiser is working. If you can’t be there, your realtor should be.

Don’t hover and don’t be a pest, but be available to answer any questions he may have. You’ll also be able to point out any amenities or upgrades that he might miss on his quick run-through, as long as you’re polite and respectful.

What If The Appraisal Is Lower Than You Expect?

The appraisal report won’t just be a number; it will explain all of the factors that went into determining your home’s worth.

If you think the appraised value is way too low, take some time and review the entire report. It’s possible the appraiser made errors on important numbers like total square feet or number of bathrooms. It’s also possible that he used improper comps which painted an improper picture of the home’s market value; you may want to ask your real estate agent to help you find better, more reasonable ones.

Then put your “suggested” appraisal changes in writing and submit them to the appraiser. Remember – even though you may not think much of the work he did, he considers himself a professional and expects you to treat him that way.

No luck getting the appraisal changed? You always have the right to hire a different appraiser and see if you fare better the second time around. Of course, that will mean paying another fee.

Don’t Spend All Of Your Time On The Inspection

Home sellers understandably devote most of their attention – and their “worrying time” – to the home inspection, because every flaw uncovered by the inspector will likely take money out of their pocket.

But the home appraisal is a crucial part of the home selling process too, and a poor appraisal can cost you even more than a inspection report revealing some issues in need of repair.

Treat them equally, and prepare for them equally. A little forethought and work can end up saving you big money.

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