If you are refinancing a home to use some of its equity (including a reverse mortgage) or buying a new property and financing it, the lender will most likely require an appraisal in order to justify the value of the loan and/or sale price.
Appraisals for home loans must follow certain guidelines. Appraisers are selected by the lending institution at random from a pool of qualified appraisers. This ensures an unbiased valuation.
Appraisers compare SOLD/CLOSED, similar-style homes with the subject property (i.e., two-story colonials with two-story colonials, split entry with split entry, and so on). They also attempt to stay within one mile of the subject.
Lastly, they look at properties that have Sold/Closed within the past 180 days (to ensure current sales values).
The following factors can influence a home’s appraised value:
- Floor Plan: Older homes often have unusual floor plans that don’t align well with the way people live today. Today’s buyers tend to prefer modern, spacious and open layouts and may be turned off by plans that require walking through one bedroom to get to another, for example, or no walk-in closets.
- Location: Location – Location – Location. A property in close proximity to an eyesore (e.g., poorly maintained or abandoned neighbor) or backs up to a major, busy roadway may negatively affect the appraised value. Conversely, a highly-desirable location will positively impact value. Cul-de-sacs and views add desirability and value to a property.
- Condition: A home in mint condition will receive “high marks” but an outdated, deferred-maintenance home will be discounted. People typically mentally double the estimated costs to improve a property.
- Remodeling & Additions: Home improvements completed without the necessary permits can also hurt an appraisal. For example, a finished addition may not be counted as living space by the appraiser if it is not up to code.
There are many other factors that can influence a home appraisal’s value. If the appraised value falls short of a sale price, for example, it can always be appealed.
There is a formal process to follow and a seasoned loan officer and experienced realtor can accomplish this task. Sometimes the appraised value is amended, assuming additional data is provided. If not, the buyer and seller must renegotiate terms.
The recommendation is to always work with a trusted loan officer and experienced realtor whenever dealing with real estate.
