How Home Appraisers Decide on the Value of Your Property
There are many reasons you may need to know the value of your property and for this, you need a home appraisal.
Home appraisers are trained to inspect and measure your property and perform comparisons that result in an accurate valuation for the current housing market.
Home appraisals are a vital part of the home buying process as they have a big influence on the amount a lending institution will loan the buyer. They are also used to assess the value of the home for home improvement loans and insurance evaluations.
Read on for more information about how a home appraiser determines the value of your property.
What is a Home Appraisal and Why is it Important?
A home appraisal is a legal document containing information that determines the current fair market value of a new or existing property. Financial institutes or mortgage lenders will require an appraisal to ensure the home is worth the amount of money being requested in the loan or mortgage.
Home appraisals are not just for when someone is buying or selling a home for themselves however, they are also important for:
- New construction loans
- Renovation loan assessments
- Mortgage financing and refinancing
- Reviewing / appealing property tax assessment
- Property division in separation / divorce
- Estate settlements
- To determine capital gains on second or rental properties
- Valuation for insurance claims
- Tax implications for final probate
What is Checked During a Home Appraisal?
There are two main parts to a Home Appraisal:
- Inspection of the property
- Research and analysis of comparable properties
Property inspection: As part of the appraisal process, your home appraiser will conduct an on-site inspection of the property. During this inspection they are looking at:
- General characteristics of the home:
- Size of home – square footage, number of rooms – especially bed and bathrooms
- Functionality of design and layout
- Any exterior amenities such as garage, deck, pool
- Type of foundation
- Whether a basement or attic are present and their state of finish
Note that appraisers are not looking for any signs of damage to the foundation, basement, attic or mechanical equipment – that would be done by a home inspector as part of the conditions of sale.
- Quality assessment:
- Current condition of internal and external aspects of the home – including material and state of walls, floors, roof, windows
- Type and age of plumbing and other systems (condition would be determined during a home inspection)
- Any improvements that have been made:
- Updates to kitchens and bathrooms
- New efficient heating and cooling systems
- Recent replacement of major ticket items like windows / roof
- Energy efficient features such as HVAC, energy star appliances
Note: Home appraisers only look at the fixed features of the home. They are not assessing décor or any feature that is considered removable.
- Size and topography of the lot
- View (including negative views)
- Vehicular access
- Any existing easements or zoning issues
- How well does the home fit in with the surrounding neighbourhood?
- Local amenities – how close is the home to hospitals, schools, shops and public transport corridors?
- Crime levels and general condition of the neighbourhood
Comparison to similar properties: As part of the research involved in a home appraisal report, the appraiser will compare the home with others that have recently sold that:
- Are in the same or similar neighbourhood
- Have comparable features such as size, number of rooms, age
The appraiser will review the sale price of these similar homes and make adjustments to account for any differences between them and the home being appraised.
How Does a Home Appraiser Determine Value?
When compiling their final report, home appraisers will determine the final value using a combination of two out of these three methods:
- Direct comparison: Value is determined by analyzing comparable properties.
- Cost approach: Value is derived from the cost to replace or rebuild the property and its associated land minus any age-related depreciation.
- Income approach: Value is determined based on the rental income potential – usually only used when the property is being purchased for this purpose as an investment property.
The final appraised value of your home may be affected, either positively or negatively, by:
- The location of the home
- Current real estate market conditions
- Size of home and number of rooms
- Zoning in the neighbourhood
- Future potential for development of the home
Things that can negatively impact the value of your property in a home appraisal include:
- Delayed maintenance
- Dated or undesirable features
- Undeclared repairs
- Inexperienced appraiser – make sure you choose a professional appraiser who is in good standing with the Appraisal Institute of Canada and who has a good understanding of the local market conditions where your property is located.
How Can You Help Improve the Appraisal Value of Your Property?
If you are preparing for an appraisal on your home there are a few things you can do to help improve the final appraised value, such as:
- Prepare – treat an appraisal the same as a house viewing – present your home in its best light.
- Simple fixes – repair minor damage, paint over marks on walls etc.
- Paperwork – gather any relevant paperwork that supports the valuation of the home such as property tax bills, HOA fees, receipts and permits for any improvements or upgrades.
This pre-appraisal checklist for homeowners is a great starting point for anyone looking for the best ways to positively influence their final appraisal value.
Get Expert Help from a Local Qualified Home Appraisal Team
If you need an appraisal on your property for any reason, make sure you use an experienced and qualified appraiser like the team at D.Fritz Appraisals Inc. Based in Victoria, BC and offering home appraisals across Vancouver Island and the Gulf Islands, our team of appraisers are all in good standing with the Appraisers Institute of Canada and have superior knowledge of the local market.
Whether you are a property owner, real estate agent, mortgage broker or lawyer, we can provide quick and accurate home appraisal services. Contact us today to let us know how we can help with your home appraisal needs.