What Do Appraisers Look For When Determining A Property’s Value?
Posted by: Greg Fischer Post date: April 4th, 2011People often ask me how an appraiser determines the value of a home. Sometimes this is because they are trying to refinance and we aren’t sure what the value might be, or when a buyer is concerned that a house they are interested in is overpriced.
A common misconception homeowners generally have is that the value of their home is determined after the appraiser has completed their physical property inspection. However, the appraiser actually already has a good idea of the property’s value by the time they have scheduled an appointment to stop by the property. The appraised value of a property is determined by comparing it to recent sales of similar homes. An ideal “comp” is a house that is of similar age, size and style as yours, that sold last week, across the street (property, recentcy and proximity). The price it sold for should be a very good indicator of the value of your property. But since that perfect model probably doesn’t exist, the appraiser uses the most similar properties available, that have sold within the past 6 months, that are located within a mile (or a little further for more rural properties) and makes adjustments to get the value. Adjustments are made for things like square footage, garage, features etc. Then they add all the plusses and minuses of several comps to determine the “most likely sales price” of the subject property right now.
The good news is that you don’t have to worry push back an appointment a few days just to “clean things up” in order to help influence the value of your property. While a clean house will certainly make it easier for the appraiser to notice improvements, the only time you should be concerned about “clutter” is if it is damaging to the dwelling. If you have any concerns about the condition of your property, talk to your mortgage professional BEFORE the appraiser is sent to the property. Many “fixes” are inexpensive and simple to do before the inspection, but any items that require repair will need to be reinspected (at additional cost) prior to the loan closing.
The Key Components Addressed In An Appraisal
The Site: Location, view, topography, lot size, utilities, zoning, external factors, highest and best use, landscaping features…
Design: Quality of construction, finish work, fixed appliances and any defining features
Condition: Age, deterioration, renovations, upgrades, added features
Health & Safety: Structural integrity, code compliance
Size: Above grade and below grade improvements
Neighborhood: Is the property conforming to the neighborhood?
Functional Utility: Is the property functional as built – style and use?
Parking: Garages, Carports, Shops, etc..
Other: Curb appeal, lot size, & conforming to the neighborhood are obvious to the appraiser when they drive down into the neighborhood pull up in front of your home. When entering your home, they are going to look at the overall design, condition, finish work, upgrades, any defining features, functional utility, square footage, number of rooms and health and safety items.
