Selling? Find Out How Your Home is Appraised For Its Value

The game of real estate can be a potentially complicated one, involving many facets from the point of listing to the point of selling, and beyond. Obviously, sellers want to be able to ensure that the selling process is as streamlined and hassle-free as possible. But many times, sellers often find themselves waiting around for the right buyer to come along, all while their listing sits on the market and becomes more stale by the day. And once an offer finally does come in, many times the dollar figures aren’t as high as sellers would have liked them to be.

Offers are also often littered with a variety of contingencies that can drag the closing on, and even cause a deal to fall through. Whether it’s because the buyers can’t secure financing, or they are not satisfied with the outcome of the home inspection, many deals can be wiped out as a result of contingencies gone bad.

And then there’s the need to have the home appraised in order to determine its true market value. This is often done to satisfy the needs of the lender before financing is approved for the buyer. But how exactly are properties appraised for their value?

Why is an Appraisal Needed in the First Place?

There are a few reasons why your home would need to be appraised before it’s sold. First of all, you’ll want to know how much you can realistically get for it before you come up with a listing price. After all, you want to be able to get as much as you can without asking for too much. Buyers will also want to know how much your property is worth before they come up with an offer price.

Lenders will also require that the home be professionally appraised before they agree to provide a mortgage loan for the buyers. Lenders will not want to loan out more money than what the home is worth. Doing so puts them at risk should the buyer default on the mortgage, and the lender is stuck with the repossessed home that they are unable to sell at the same price that the buyer paid for it. Appraisals essentially act to protect lenders who are involved in providing the buyer financing.

Analysis of Neighborhood Comparables

One of the first things that a home appraiser or real estate agent will do is check out the recent sales of similar properties in your neighborhood or street to see how much homes have sold for. Appraisers will typically only look at homes that are very close in character to yours, including its size, number of bedrooms and bathrooms, size of the lot, special features, and so forth.

The sales of these properties ideally should only be from within the last two or three months - the more recent the better. Homes that are currently for sale can also be looked at, but checking out actual completed sales provides a better picture as to what the market is like in your neighborhood, and what buyers are willing to pay for homes like yours.

A common misconception among homeowners is that home appraisers will look at the curb appeal and level of cleanliness and tidiness of a home in order to come up with an appraised value. Even though the overall maintenance of the house and its surrounding property plays a role, things such as dirty dishes piled up in the sink or a lawn that’s full of weeds usually does not affect the appraisal.

What Types of Appraisal Methods Are Typically Used?

Professional appraisers typically use one of two methods when appraising a home: the sales comparison approach, and the cost approach.

Sales comparison approach - With this appraisal method, the property is compared to a few other similar properties in the area that have recently sold. This is where the comparable come into play. The analysis takes into consideration certain factors, including lot size, finished versus unfinished space, age of the home, garages, and so forth.

Cost approach - This approach to appraising a home is more often used for newer homes and is based on the cost to reproduce the exact same home. The appraiser will estimate how much it would cost to replace the entire structure of the home if it was completely destroyed. Following this, the appraiser can then look at the land value and the level of depreciation to come up with the home’s value.

What Does an Appraisal Report Include?

After a professional home appraiser has conducted a thorough appraisal of your home, an appraisal report will be generated. Generally, these reports include the following pieces of information:

* The specific method used to conduct the appraisal

* How the appraiser determined the property’s value

* The square footage of the home

* list of permanent fixtures

* A description of improvements made and the materials used to make such improvements

* A list of structural issues, including cracks in the foundation or moisture in the basement

* Details about the neighborhood or street

* Recent market trends in the area and how they can potentially affect the value of your home

* A comparative market analysis (CMA)

* Photos and maps of the home and the property