Buying a home can be many things. It can be the fulfillment of the so-called “American Dream,” the realization of a lifelong goal, and the milestone of all milestones. It can also be a foray into investing — potentially the only investing some Americans will ever do aside from a 401(k) — and, like many investments, a home’s value will likely change throughout the ownership period.
This change is important to note, as a home’s value impacts the homeowner whether they’re contemplating selling or not. For example, those looking to apply for a home equity loan, a home equity line of credit, or even a refinance will be limited by the home’s current value. If the value has gone up since the home was purchased, home equity increases proportionally; if it has decreased, so has your home equity. While this may be a simple sliding scale, the home appraisal process is far more complicated.
Here, we’ll take a closer look at the home appraisal process — and provide you with the ultimate home appraisal checklist to ensure you get the greatest return on your investment.
If you take a precious gem to a jeweler — or a first edition comic book to a hobby store — experts will conduct a thorough inspection as part of the appraisal process. Factors like inclusions and brilliance in the case of a gem or creases and tears in the case of the comic book (and rarity in the case of both) will contribute to the appraised value of these items, and the appraiser’s final figure will take each of these factors into consideration. A home appraisal is not dissimilar, as a home appraiser will look at the current market value, the amount of available inventory in the area, the home’s condition, and the going rate for similar properties when calculating the appraisal price.
Once a home has been appraised, homeowners have a clear idea of a fair asking price should they choose to put their home on the market, which will limit the amount of time a home sits in limbo and ensure that sellers see returns on their investment.
Home appraisals vs. home inspections can confuse some buyers, as the function of these two processes is largely similar. Whereas a home inspection focuses on a home’s condition, however, a home appraisal is centered more on the home’s value. With that said, the condition of a home will play a role in its valuation, and many components of a home inspection may carry over to the home appraisal process. Things like damaged or aging paint, an eroding foundation, a worn-down roof, and electrical issues which need immediate attention will have an impact on a home’s appraisal value, and should be addressed before an appraisal to maximize value. But more on that later!
Technically, there is no “failing” a home appraisal. Rather, a “failed” appraisal is one where your home is not appraised for its full value (especially when this is due to factors within your control.) A home inspection, while also not graded on a “pass/fail” scale, may reveal things that need to be addressed before listing the home on the market. Likely, this will include issues about the home’s “liveable conditions” — that is, things that impact the home’s safety and generally liveability. Faulty wiring, dangerous molds, the presence of lead paint, and extensive water damage probably won’t fly and might kill a deal should they show up during a home inspection.
As mentioned above, the only failure when it comes to a home appraisal is the failure to recoup every dollar of your initial investment. Still, certain variables can limit a home’s appraisal value, including:
There is not much that homeowners can do about the market activity or the health of the economy, so ensuring that the home is in optimal condition before an appraisal is key. Replacing a roof, for example, can boost your home’s appraisal price — or even be the difference between a home sitting on the market or flying off of the (metaphorical) shelf.1
So, what do home appraisers look for, exactly? Market values, while important to a home’s appraisal price, are far from the only thing that home appraisers look at when pricing a home. Let’s take a look at what home appraisers will be paying attention to in regards to the house itself.
You’ve probably seen someone on an HGTV show talking about a home’s curb appeal, and TV home improvement personalities aren’t the only ones concerned with this detail. Home appraisers will want to take a close look at the home’s exterior to gauge its appraisal price and look for any potential hang-ups which could cause a sale to fall through. Things like the aforementioned aging roof and chipping paint may serve as demerits for a home appraisal, as will improper grading or poor drainage. It’s not all bad, however — large plots of land or value-adds like swimming pools, solar panels, and outdoor kitchens can positively impact the appraisal price.
Inside the home, appraisers will comb through with a slightly finer tooth. Specifically, they’ll want to log the bedrooms, bathrooms, and extras (like a garage, gym, library, or office). Appraisers will also confirm that appliances are in working order. This is a great time to call out any additions or improvements you’ve made, as this may improve the final appraisal value. As a rule of thumb: Appraisals are typically done in increments of $500, so any improvements less than or equal to $500 are worth making.
So, how much does a home appraisal cost? The average home appraisal can cost between $300 to $400. Factors to consider include the mortgage, location, and property size. While the mortgage lender hires the appraiser, the buyer shoulders the cost of the property appraisal.2
Wondering how to increase home value? As you’ve probably realized by now, a home appraisal is not something you want to go into unprepared. Follow these steps, however, and you’ll guarantee that you get as much out of your home as possible.
Leaks and water damage can not only decrease your home’s appraisal value but also prevent a sale at any price. Homeowners financing through a Federal Housing Administration (FHA) loan will not be issued a home loan for properties with any signs of water damage. Therefore, water damage is definitely not something you want to be brought up during an appraisal.
Here is also where you can ensure your roof is free of leaks and make a necessary replacement if your roof is a bit long in the tooth. FHA loans stipulate that a leaky roof is also a non-starter, and even VA loans insist that roofs be in sound condition. New roofs aren’t cheap, but considering they could be the difference between a home selling or sitting, we’d say it’s a worthy investment.
Home appraisers will also want to ensure a home is safe — part of their inquiry into the property’s “liveable conditions” — and they will look for potential hazards in the home. Things like wobbly wall-mounted fixtures and ceiling fans or rickety railings (indoor or outdoor) will raise major red flags with inspectors and should therefore be addressed well before an appraiser has had time to register them. In some cases, these fixes can be as simple as tightening some screws; in others, entire railings may need to be replaced. No matter the scale of the repair, however, make sure your house is safe to maximize both its appraisal value and your peace of mind.
New appliances — like an air conditioner that blows ice-cold or a sparkling array of stainless kitchen equipment — can be major perks in the eyes of a home appraiser, but these appliances are worthless if your utilities aren’t in working order. As a part of your home appraisal checklist, therefore, you should ensure that all utilities are functioning properly. This includes air conditioning, electricity, and water but also extends to ground fault circuit interrupter (GFCI) outlets.
Like leaks and water damage, working utilities can be the lynchpin to approval for both an FHA loan and a VA loan. So, to make sure that potential buyers have the best possible chance at getting financing for the purchase of your home, double-check that your utilities are up to snuff before scheduling an appraisal.
As houses age, they settle. And as they settle, they may form small cracks that can turn into big ones if not taken care of quickly. While cracks do not always signify problems with the foundation, they’re not something appraisers want to see in a property and should be addressed before an appraisal. The same goes for gaps that expose floorboards or allow unwanted drafts, which can be detrimental to buyers seeking an FHA loan.
When you bought your home, did you look at the blank walls and empty rooms and think, “I can really see myself here”? If not, did you at least think the space “had potential”? Potential buyers will ask themselves if the home they’re looking at is one they can build a life in, and properties that are hyper-personalized will be much more challenging for buyers to make their own.
Think about celebrity mansions with onsite golf courses, slides, and bowling alleys; in many cases, these homes are worth far less than the sum of their parts when they land on the market. Though your home may not be listing for $30 million, it will still benefit from having a timeless look that buyers can see themselves in 30 years from now.
By leveraging the above checklist, you can be certain that you’ve done everything within your power to get the most out of your home. With that said, however, selling isn’t your only option — and Truehold’s Sale-Leaseback allows seniors to enjoy the rewards of their investments while continuing to live in the houses they’ve worked so hard to make a home.
To learn more about a residential Sale-Leaseback agreement and to maximize your return on investment, download our info kit today.
1. Zillow. How Much Value Does a New Roof Add? https://www.zillow.com/sellers-guide/should-i-replace-my-roof-before-selling/
2. Home Advisor. How Much Does a Home Appraisal Cost? https://www.homeadvisor.com/cost/inspectors-and-appraisers/hire-a-property-appraiser/#factors