Before your lender approves your home loan, the property you agreed to purchase will need to be appraised first. Your lender will want to get an objective and professional assessment of the home’s actual market value before matching that price with a home loan. As such, an appraiser will be appointed by the lender to determine what the home is worth according to current market conditions and how it compares to other similar homes in the neighborhood.
The value that your appraiser assesses your home at is very important; if it’s lower than what you’ve agreed to pay for it, you could lose out on a mortgage, so it’s certainly a crucial step in the process. But what exactly affects the final appraised value of the home?
1. The Local Market
A key factor that will impact your appraisal is the condition of the local housing market. Comparables – which are similar homes in the neighborhood that have either recently sold or are still active on the market – can tell you a lot about how much other homes are selling for, as well as appreciation or depreciation of property values. Appraisers will use the information collected on similar properties in the area and use it to calculate the final appraised value of the subject property.
Exactly where the property is situated in relation to other homes and amenities in the neighborhood is another critical factor that appraisers will look at. For instance, a home that sits on a large pie-shaped lot that backs on to a ravine will be worth more than a home with a standard-sized lot that’s on the main road. The appraiser will also look at the how close the home is located to schools, shops, hospitals, parks, public transit, and main roadways, to name a few.
3. Number of Bedrooms and Bathrooms
Generally speaking, a home with more bedrooms and bathrooms is considered worth more, as long as these numbers are in line with what the neighborhood calls for. The appraiser will compare your property to others in the area that have the same number of bedrooms and bathrooms to make a value comparison. For instance, a home with two full bathrooms will typically be appraised higher than a property with only one.
The overall square footage of the home plays a big role in its overall appraised value. After determining the exact size of the home, the appraiser will identify how many stories it has and precisely how much of the space is usable and livable when evaluating the square footage of the property.
5. Structural Strength
A home that’s in sound condition will be appraised higher than a similar home that’s got structural issues. Appraisers will look at the condition of the home’s structure and construction, and will identify the exact types of materials used to build the home. A home that’s been built or updated with modern materials will be appraised higher than a home that hasn’t been improved since it was originally constructed. Other updated materials, such as the roof and windows, can also add value to the home because they boost the safety and efficiency of the home’s structure.
6. Recent Improvements
Tying in with the previous point, any recent cosmetic upgrades that have been done to the home can increase the appraised value of the home. A kitchen or bathroom remodel, for instance, will contribute to the appraisal value.
7. Curb Appeal
Home appraisers consider curb appeal when valuing a home, which essentially refers to how a property looks from the street. A clean, esthetically appealing front yard and home exterior add to the appraisal value, as does the size of the lot and the views from the property.
8. Age of the Home
The age of the property is a factor that the appraiser will consider when calculating its value. Having said that, a newer home doesn’t necessarily mean it will be valued higher than an older home. New homes are obviously less likely to have any issues, so they’re typically a lower risk to purchase, which will positively affect the appraisal value. On the other hand, many older homes are located in historic districts which will also have high appraisals. Regardless of age, property values will be higher if the home has been well cared for and improved.
9. Style of the Home
The overall design of the home is another factor that is assessed when determining its appraisal value. Certain classic designs stand the test of time, while other trendy designs quickly go out of style. The latter can actually have a negative impact on the appraisal value compared to the former.
10. Condition of Major Systems and Appliances
The age and condition of the home’s HVAC units, appliances, and electrical and plumbing systems will be considered in the home’s overall appraised value. Obviously, if these components are in bad shape, this will negatively affect the appraisal. On the other hand, if they’ve all been well cared for or have even been replaced in the recent past, this will increase the value of the property.
The Bottom Line
All of the above factors play a big role in a home appraisal. If your appraisal is in line with the sale price, you’ll be one step closer to solidifying a mortgage. On the other hand, if it comes in below what you bought the house for, you may either request another appraisal (which you will likely have to pay for), renegotiate with the seller for a lower price based on the appraised value, come up with the extra money required to bridge the gap between the home loan amount and the purchase price, or walk away from the deal altogether.
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