How Do Home Appraisals Really Work?
Learn the home appraisal process from an expert
Have you ever had a home appraisal come back and show a very different value than you expected? Whether you’ve decided to buy a new home, sell your current home, or refinance your mortgage, a real estate appraisal is a key part of the transaction. But with 20% of home closings delayed due to issues with the appraisal report according to Realtor Magazine (maybe yours was one of them?), you may be skeptical about how the home appraisal process really works. So we sat down with Craig Silverman, a Principal and Chief Appraiser from Silverman & Co. with 30 years of experience conducting appraisals in residential neighborhoods, to get you the answers.
What are the types of home appraisals?
“There are three main approaches an appraiser will use in valuing a property,” Craig Silverman explains. “The Cost Approach which is commonly used for developers in new construction, Income Approach for commercial or income-producing properties, and finally, Sales Comparison, which is really the only one you’ll need to know as a homeowner.”
The Sales Comparison approach compares local, recently-sold properties (or “comps”) to the home being appraised. “The goal is to determine the value of a property based on the amount someone would pay for it if it was on the market and anyone could bid on it.” To do this, there are a handful of factors about the home that are evaluated.
How the Sales Comparison home appraisal method works
The Comparable Sales Approach provides a standard process for appraisers to determine a supportable market value of the home in order to assist homeowners and homebuyers in making a decision (purchasing, selling, insuring, or lending money on a house, etc.).
Step 1 is finding 4-6 comps that sold within the last 12 months in the same area to serve as a general baseline.
An appraiser will typically start with a wide net of comps (up to as many as 20-25 homes), generally looking for similarities based on:
- Zip codes, neighborhood, subdivision or school district
- Home style
- Number of bedrooms
- Number of bathrooms
- Square footage
- Lot size
As the appraiser begins to narrow down the list of comparable sales, he or she will focus on what specific qualities of that home will make it attractive to the same potential buyer. They consider the search through the eyes of that buyer and figure out which of the comps they would also consider during their home search.
What does an appraiser look at?
In Step 2, the appraiser will make positive or negative adjustments to the comparable home values based on factors that are relevant to that market. By reviewing sketches/floor plans, conducting walkthroughs and taking property measurements, the appraiser will look for any features and conditions that are different between the comparable homes and the home being appraised. “These ‘comparable units’ will have different values in each specific market based on their demand from the people that live there,” Craig explains.
Top features home appraisals will focus on:
- Location Details - Property site & size, desirability of the neighborhood, proximity to local amenities, etc.
- Structure - Structural integrity, age of the home, construction quality, roof & foundation, code compliance, etc.
- Layout - Functional layout, square footage, additional beds and baths, finished basements, etc.
- Features - Central air, kitchen island, pools or spas, etc.
Other features home appraisals will look for:
- Curb appeal
- Recent renovations or upgrades
- Garage space (1 or 2 car garage, etc.)
- Storage space
- Design style (overall finishes & decor)
- Gutters and siding
Step 3 is reconciling the adjustments made to the comparable homes’ value based on the different factors mentioned above. For example, if the appraised home has a 2-car garage versus the comparable home’s 1-car garage in a market where off-street parking is highly desirable to potential buyers, a positive (+) adjustment will be made to the comparable to make it equal to the home being appraised. But a feature must be quantifiable in the market in order for any adjustment to be made; meaning the potential buyers will specifically have a negative or positive reaction to it. It’s the appraiser’s job to determine the true value of each feature in the eyes of the buyer within that distinct market.
How long does a home appraisal take?
The home appraisal process can take anywhere from 30min to a couple of hours on-site, and once the appraiser has all the information they need, it will typically be a week or two before he will deliver the full report of the home’s appraisal value.
How to prepare for your home appraisal
While you can’t control market conditions, there are some things homeowners can do to help head off a lower value on your home appraisal. “The best way to prepare for a home appraisal is to provide the appraiser with as much information as possible,” Craig notes. If you’re planning a home renovation project, this is especially important for As Completed Appraisals. “An appraiser can only make evaluations based on what they know. The homeowner can help by providing blueprints, floorplans, and a breakdown of the new features to be added, as well as the projected costs.”
But if your appraisal report comes in at a lower value than you expected, and you believe that there may be important information about your renovation that isn’t being considered or reported accurately, you can submit what’s called a “reconsideration of value” to the appraiser. This challenge will have to originate through your mortgage lender. They will have a thorough system of checks and balances comparing the appraisal report to other appraisals on all sales in your neighborhood — but anything additional you can provide or point out to your lender will help.
Getting a Home Appraisal for Your Home Renovation
With a better understanding of how home appraisals work, you won’t have to hold your breath when waiting on your appraiser report to come back. If you have any additional questions about the process or how to prepare for an upcoming home appraisal before your renovation project, RenoFi can help you understand how best to move forward.