Thinking Like an Appraiser

by Patricia Leary ◊ Aug 03, 2012

I read Money magazine, and every now and then an article comes along that sparks my interest and I have to share it with the world! The author, Allison Rogers, goes into four details that homeowners think are going to bring back the big bucks when it comes to an appraisal; but they, in fact, may break the sale instead of making it.

First things first though. What is an appraisal? An appraisal occurs typically after a home is under contract and is a valuation of the home you are either buying or selling. A licensed appraiser comes to the house and looks at the amenities, condition, and other aspects of the home. Then, they compare this home to recent closed homes that are like yours. This creates an appraised value that either exceeds or does not meet the contract price on the home. If it does not appraise, the buyer of the home has the right to ask for the lower price from the seller. If the seller refuses, because a bad appraisal will mean the seller will have to bring money to close, then the contract is “dead in the water.”

When it comes to assessing a home’s value, real estate agents and homeowners tend to be an optimistic bunch. In the post-bust world, appraisers are a different story. They have to predict a realistic value for your home that the bank can use to extend credit to a borrower and that number can make or break your sale or refinance. Appraisers say the following five areas are where homeowners often misjudge the worth of their abode.

The Outside – If the appraiser sees overgrown bushes and chipped paint, he or she slices as much as three percent off the value of an average size home. Curb appeal is primo. And, an unkempt yard is a sign that there may be other issues. A good-looking lawn and bushes imply that you also take care of the internal systems of the house. Moreover, the more meticulous your neighbors are about grooming, the more your appraiser will downgrade the value of your home. If a lot of the nearby properties are professionally maintained, the one that sticks out like a sore thumb will get a harder adjustment than in a subdivision where there’s more variation.

Basic Systems – If the appraiser sees a brand new roof, what he adds is nothing. Just as a knee replacement won’t make you look 20 years younger, a new roof, furnace, or boiler isn’t considered an improvement to your home. That said, if your roof is in disrepair, replace it. Signs of leaks or discoloration can knock a significant amount off the home’s value. So, while a new one isn’t an added feature, it will help your chances of a sale.

The Basement – If the appraiser sees a recently finished basement with a half bath, he adds about two percent to the value of the home. Your finished basement adds value, but don’t expect it to count like first-floor space. The addition of a bedroom and quarter bath on the ground floor could increase your home’s value by up to 20 percent, especially if you’ve got only one other bathroom. A below-ground basement normally isn’t included in the square footage of the house. The same rule applies to outbuildings, like a pool-house casita, painting shed, or studio.

The Market – If the appraiser hears two nearby homes just went into contract above their asking prices, what he adds is nothing. While a broker might pump up a home’s asking price based on the sense that the market is “hot,” by and large, appraisers are bound by the data of recent comparable sales. What if prices are suddenly up in your area, and you’re nervous that your house won’t appraise for contract price? In that case, you might want to delay your appraisal until one of those recently contracted sales closes.

Call me, your local Mortgage Banker, to set up an appointment today at 203.645.1037.