How to AVOID a LOW APPRAISAL | Every Homeowner Should Know This
What if I told you there’s a secret method to boosting your home’s appraised value that most homeowners overlook? Stay tuned to find out.
A home appraisal is an estimate of a property’s fair market value conducted by a licensed appraiser. It’s a critical step in the home buying, selling, or refinancing process.
If the buyer is obtaining a loan, the lender will generally require an appraisal to be completed to confirm that the home is worth the agreed upon price.
Appraisers evaluate several factors to determine a home’s fair market value. Value is range and appraisals are subjective. You could have 5 different appraisers come to your home and get 5 different values. It just depends upon what an appraiser is willing to consider and make adjustment for.
Here are the key items the appraiser will take into consideration when determining value:
Location
The neighborhood, school district, proximity to amenities, and overall desirability of the area play a huge role in a home’s value. A house in a sought-after location will typically appraise higher than one in a less desirable area, even if they’re similar in size and features.
Condition of the Home
The appraiser examines the overall condition of the home, including its structural integrity, roof, foundation, plumbing, and electrical systems. A well-maintained home generally receives a higher appraisal than one needing significant repairs. An appraiser will walk through the property and look for items that need repair. Most lenders are going to require that the property be habitable so if there are big repairs needed it then the appraiser may make note of it and the lender won’t finance it.
I have a property listed now that the home is on expansive soil. The appraiser made not of it and said the home was not habitable, so we are having trouble with the lender financing the home.
Home Improvements
Renovations and upgrades can significantly impact a home’s value. Kitchen and bathroom remodels, new flooring, energy-efficient windows, and updated systems (like HVAC) often boost appraisal. However, not all improvements have the same return on investment, so it’s wise to consult with a real estate expert before making changes. Some appraisers will be hesitant to add a significant amount of value for improvements.
Comparables (Comps)
Appraisers look at recent sales of similar homes in the area, typically within the past six months, to help establish a value. They will start within the neighborhood and if there isn’t anything comparable then they will use similar homes within 1 mile from the subject property. These “comps” consider factors like size, age, and features of nearby properties to gauge how your home compares.
Getting your home ready for an appraisal can make a big difference in the final valuation. A little preparation goes a long way toward showcasing your home in its best light.
- Cost-Effective Home Improvements
You don’t have to break the bank to make your home stand out during an appraisal. These are items that should be completed even prior to listing the home. These are some affordable ways to help sell the home faster, boost your homes value in the eyes of the buyer and the appraiser!
If your home has minor repairs, like repairing a leaky faucet, or replacing light bulbs, take care of those before listing. Small fixes show the appraiser that your home is cared for.
Two of the larger items I do recommend having completed (if needed) are a fresh coat of paint and replacing worn carpeting. A fresh coat of neutral-colored paint can make your home feel updated and well-maintained. For flooring, focus on high-traffic areas and any walls showing wear and tear. Handling these items can make a big impact on how the shows.
Decluttering and Cleaning: While not technically an improvement, a clean and organized home feel more inviting and spacious, which can positively influence the appraiser’s perception.
Set the Mood: Open blinds or curtains to let in natural light and consider adding subtle touches like fresh flowers or a pleasant scent to create a welcoming atmosphere.
- Documenting Enhancements
If you’ve invested in your home, make sure the appraiser knows! Providing documentation of improvements and renovations can highlight the value you’ve added to your property. Most appraisers want to appraise the home as high as possible. They need documentation for their file in order to do so.
Write down all the updates and renovations you’ve completed, big or small. Include the year and details of each improvement. New AC, New hot water heater, upgraded insulation. Even things such as larger lot, gated community. Provide receipts for materials and labor. These records demonstrate the investment you’ve made in your home.
Presenting this information to the appraiser gives them a clearer picture of your home’s value and can help ensure you get credit for the work you’ve done.
Appraiser Interaction
While appraisers are independent professionals who assess value objectively, there are ways to assist them during their visit without overstepping boundaries:
We always meet the appraiser at the home for our seller clients. We bring information for the appraiser such as a list of the comparable sales we used to determine the list price originally. The list of improvements and upgrades.
Be Welcoming but Respectful: Greet the appraiser and provide them with easy access to all areas of your home, but give them space to do their job without hovering.
Share Key Information: Provide a list of recent upgrades, repairs, and renovations, along with documentation like receipts or invoices. Highlight improvements that may not be immediately obvious, such as upgraded insulation, new plumbing, or a recently replaced roof.
Answer Questions Promptly: Be available to answer any questions they may have, such as details about square footage, property boundaries, or systems like HVAC or water heaters. Clear, accurate answers can help avoid confusion and ensure accurate appraisal.
A well-prepared homeowner (or real estate agent) who interacts professionally with the appraiser and presents the home in its best light can make a significant difference in the outcome of the appraisal. Because we do meet the appraiser at the home, we know most of the appraisers in town and we work to be helpful and considerate of the appraisers’ time.
A low appraisal can feel like a setback, but it’s not the end of the road. Here’s how to handle the situation effectively.
- Review the Appraisal Report
Before taking any action, carefully review the appraisal report for accuracy. Look for Errors in Details. Such as mistakes in square footage, number of bedrooms or bathrooms, or any upgrades that might have been overlooked.
Comparable Properties (Comps): Ensure the comps used are recent and relevant. If they’re outdated or don’t align with your property’s features, it could lead to a lower valuation.
Omissions: Confirm that all improvements and renovations you’ve made to the property were considered.
If you spot any errors or omissions, note them and be prepared to present them to the lender or appraiser for reconsideration.
- The Dispute Process
If you believe the appraisal doesn’t reflect your home’s true value, you have the option to challenge it. Provide a list of comparable properties that better align with your home’s location, size, and features. Highlight any recent sales data for similar homes in your area that may not have been included in the original appraisal. Share documentation of upgrades and renovations, including receipts, photos, and before-and-after examples.
Request a Reconsideration of Value (ROV):
Work with your lender to formally request an ROV. Submit your findings along with a detailed explanation of why you believe the appraisal should be adjusted. Keep in mind that if you met the appraiser at the home and provided this information to him already it is unlikely that adjustments will be made. However if there is a recent sale the appraiser didn’t have at the time or new information, this can make a difference. I have had several appraisers take into consideration new information.
Consider a Second Appraisal:
If the dispute doesn’t resolve the issue, you may opt to pay for a second appraisal. While there’s no guarantee of a higher valuation, a fresh perspective from a different appraiser could yield a more favorable outcome. I had a listing several years ago that the appraisal came in $100,000 under our sale price. This was an older home that had been remodeled. The appraisal used similar properties that had not been updated. We requested reconsideration but the appraiser did not make any additional adjustments. So, we requested a new appraisal. This one came in at our sale price. So, $100,000 difference between the two appraisals completed a week apart.
Your real estate agent can be an invaluable resource during this process. They can help identify stronger comps and provide market insights to support your case.
Negotiate together with the buyer. Many times, we can negotiate together. The Seller can reduce the price or the buyer can pay some or all of the difference over appraised value.
While a low appraisal can complicate a transaction, it’s not uncommon. Many deals move forward successfully after addressing appraisal concerns. The key is to stay calm, gathering evidence, and working with your team to resolve the issue.
Have questions about the process or need help navigating a low appraisal? Let me know—I’ve guided many clients through situations like this and am happy to assist!
