The phrase, "trust, but verify" was made famous by President Ronald Reagan in the 1980s. Reagan adopted this signature phrase and frequently used it to describe U.S. relations with the Soviet Union during the Cold War. In a sense, much of the initial home purchasing experience begins with the same "trust, but verify" concept. The appraisal process comes in as the "but verify" part.
In the appraisal, an appraiser, as a neutral 3rd party, is hired to determine the fair market value of your property. This is crucial to mortgage lenders because it ensures that they did not approve a loan for more money than the home is actually worth. Similarly, an appraisal protects a borrower from overpaying on a property that may be worth less than the loan. The seller, if they want to make the sale (or refinance), must comply with the appraisal process.
The appraiser measures the value of your home based upon their subjective viewpoint of the property. Rest assured that there are many objective standards that must be followed as well, but at the end of the day, the value will lie in the eye of the beholder (appraiser). This may seem intimidating, but there are a number of steps you can take to improve the appraisal valuation.
The Eye of the Appraiser
First, what exactly an appraiser is looking for? To be frank, everything. Take a look at what a uniform residential appraisal report from Fannie Mae looks like. However, there are usually some particular areas of focus, such as:
- Neighborhood dynamics: a description of the neighborhood, housing price trends, location, and growth in the area
- Zoning compliance: one major red flag is whether elements of the property do not comply with zoning requirements
- External factors: foundation, roof surface, gutters, windows.
- Internal factors: basement condition, flooring, paint quality, appliances, HVAC units, plumbing (i.e. toilets, showers, faucets, cabinetry, lighting fixtures, electrical, countertops, fireplaces, and basement finish)
- Overall condition of the property: including an inventory of needed repairs, deterioration, renovations, remodeling. They may assess any physical deficiencies or conditions that would affect the livability, soundness, or structural integrity of the property
The appraiser then gives a bottom-line dollar value estimation of the property to the lender or party requesting the appraisal. As a side note, due to COVID-19 concerns, guidelines on the appraisal process have been modified by numerous organizations, and some are avoiding going in the home at all.
How to Improve your Appraisal
Let's take a look at several steps you can take to improve your chances of having a favorable outcome for an in-home appraisal:
- Make a good first impression. While having a cosmetically clean house will not be the ultimate determining factor, it will nevertheless be a positive in your corner. First impressions are a natural human instinct.
- Fix what you can fix. Leaky faucets or running toilets are not the most expensive home repairs. But having several of these around the house may give an appraiser the wrong impression. For more costly repairs (i.e. fixing the entire roof), you will have to determine whether the benefit (in increased value) will offset the cost.
- Safety first. Issues that would affect the safety, livability or structural integrity of the house are bigger red flags and would be good to address. It's one thing to have a leaky faucet, but having a major issue, like crumbling front steps, could affect the safety of the house may be something that an appraiser cannot overlook. If you have to prioritize your repair budget, this would be at the top of the list.
- Check your neighbors out. That is, check to see when it is the most popular time for home sales in your neighborhood. Appraisers typically use comparable houses (i.e. "comps") in the area to assess the property value. If there are few houses being sold, or if sale prices are declining, this may also depress your property value as well. Conversely, if the comps are favorable and houses are selling, you may be able to ride the wave of the current market conditions in your area.
- Gather pertinent documentation to provide to the appraiser, such as a list of all the recent upgrades done (eg. HVAC units, appliances, roofing), municipal tax valuations, and recent neighborhood comps that would support the price point you are seeking.
Once you've completed the appraisal and sold your home, you may be ready to upgrade to the next one. Here at Bydand, you can rest assured knowing that our team will walk you through each step of the process. It is our mission to provide steadfast solutions tailored to accomplish our clients' home financing goals. We'd love to help you get into your dream home. Just give us a call at 877-306-0222.