What Hurts A Home Appraisal?

To secure a mortgage, a home appraisal is usually necessary to determine the property’s value. This step ensures that the lender isn’t lending more money than the home is worth. However, if the appraised value falls short of the expected amount, it can lead to complications that may even put the home sale at risk of not happening.

Understanding factors that can negatively impact a home appraisal is essential when buying, selling or refinancing a home.

What Is A Home Appraisal?

A home appraisal consists of a certified third-party appraiser reviewing the home, assigning it an appraised value and then comparing it to other homes in the area to determine its fair market value. It’s typically required by the lender when someone is using a mortgage to purchase a home or refinance their current mortgage.

A home appraiser will typically take pictures of each room in the house. This helps them provide a visual of the property being appraised so the appropriate parties will have a better understanding of each room’s condition and features when they review the report.

Purchase Appraisal Vs. Refinance Appraisal

There aren’t many differences between a purchase appraisal and a refinance appraisal, which are both used to determine a home’s value. It’s worth noting, though, that while the buyer can’t attend an appraisal for a home sale, the homeowner is allowed to attend a refinance appraisal – which can be to their advantage.

If the homeowner does attend, they may be able to point out the best parts of the home and any work they’ve done or new features they’ve added – which could help the appraiser determine a higher home value.

Why Is The Appraisal Value Important?

The appraised value is important because it determines the maximum loan amount a lender is willing to provide, which can affect both the home buyer and seller. A higher appraisal can facilitate a larger loan for the buyer and support a stronger sales price for the seller. On the other hand, a low appraisal can create challenges during the home-buying or refinance process.

You’ll want to have a clear understanding of how both low and high home appraisals affect buyers, sellers, mortgage lenders, and homeowners hoping to refinance.

Low Appraisal

A low appraisal could derail a home sale or refinance.

If the appraisal comes in lower than the sales price, the home buyer won’t be able to borrow enough money to cover the price of the home. They’ll either have to pay the difference out of pocket or renegotiate with the seller to drop the sales price. Otherwise, the sale will fall through.

With a refinance, a low appraisal may mean the homeowner doesn’t have enough equity to borrow against.

High Appraisal

A high appraisal can allow a buyer to borrow the money needed to purchase the home at the agreed-upon sales price.

An appraisal that comes in high for a homeowner preparing to refinance can increase a homeowner’s equity, which could boost their cash-out refinance proceeds or remove their private mortgage insurance (PMI) obligations on a conventional loan.

Homeowners who receive a higher appraisal than expected should be wary of borrowing more money than they intended, just because they can. There’s a risk of over-borrowing, which could leave the homeowner “underwater” – or owing more on their house than it’s worth – if home prices fall in the area. This can be especially risky if the homeowner is getting a home equity loan or a home equity line of credit (HELOC).

What Affects Home Appraisals?

The appraiser will look at various aspects of your home, then compare them to similar homes in the area and consider what those homes have sold for. Because your home’s value is based partly on the recent sales price of comparable properties nearby, the local market will have a big impact on your appraisal. Many homes will sell at a much higher price and appraise for more if the market is hot.

Here are some items that house appraisers consider that could affect the appraisal:

• The home’s location
• Land size
• Number of bedrooms and bathrooms
• Square footage
• The year built
• Curb appeal
• Major systems and home appliances
• The condition of the home and its systems

What Negatively Affects A Home Appraisal?

There are several things that can hurt a house appraisal and cause your appraisal to come back lower than you may have expected. Keep in mind that factors such as recent sales prices on nearby homes are beyond your control.

Staying aware of market conditions in your area and knowing if your home has one of these common issues can help you understand what to expect when you have your appraisal completed.

Unique Or Rural Homes

Assigning a value to unique houses or rural properties can be challenging due to a lack of comparable homes. In rural areas, a lower inventory of available properties can make it hard to find numerous recently sold homes. Unique homes are distinct by nature, complicating the search for similar properties.

When appraisers face this situation, they may have options such as looking for real estate comps in nearby competitive neighborhoods or evaluating a range of values instead of providing an exact figure. These estimates can be less precise, however, increasing the risk of a house being undervalued.

Outdated Systems, Appliances And Interiors

Updating appliances or major systems such as plumbing, electrical or HVAC can be costly. If yours are outdated, it could affect the value of the home. If the interior hasn’t been changed for decades, it may not appeal to buyers, causing the value to decrease.

Outdated features such as these could also signal that the home has not been taken care of properly and that it has more issues than meets the eye.

Structural And Other Construction Materials

Construction methods and materials have evolved over the years, with builders using new technologies that enhance a home’s strength, energy-efficiency and safety. These improvements can increase a home’s value.

Some homes, particularly older homes, may contain outdated materials – such as asbestos and lead-based paint – that are considered hazardous. Even if outdated materials are safe, a lack of modern updates can result in lower energy efficiency and affect the home’s overall value – especially if it has old windows and doors.

Roof tiles and siding that are outdated, worn out or damaged can be pricey to fix. This could also be a major issue that can drive down the home’s appraised value.

Pest Damage Or Infestation

One of the best ways to prepare for a home appraisal is to ensure your property is free from pest infestations of any past damages. While minor issues – such as a few anthills in the yard – may not raise concerns, the presence of pests such as termites or carpenter ants can  significantly lower your appraised value.

Termite damage, in particular, can be permanent and jeopardize the home’s structural integrity. This can be hard to address once discovered in the home. Be sure to tackle these types of issues before the appraisal process begins.

Poor Curb Appeal

Curb appeal plays a vital role in determining your home’s value, even if you don’t have a luxurious garden or a large swimming pool. First impressions matter, and appraisers will start evaluating your home as soon as they arrive. Focus on improving your landscaping by keeping the lawn mowed, weeding the garden and painting the front door.

These simple steps can make a big impact on your home’s appearance.

Local Market And Location

Factors such as the local housing market and the home’s location are outside of your control. However, they still play a critical role in determining your home’s appraised value. Consider factors such as the neighborhood’s quality, the nearby schools and the area’s crime rate. If any of these are unfavorable, your home’s value may be lower than expected.

The state of the local real estate market can also vary greatly. For example, two identical homes can have vastly different values if they’re not in the same market.

Home Size

Larger homes tend to have a higher value, but appraisers also evaluate whether a house is appropriately sized for its lot. A home that’s too large may leave minimal outdoor space, negatively affecting the appraisal. 

While most homeowners believe bigger is better in the appraisal process, this mindset can sometimes backfire.

Home Age

While you can’t change the age of your home, it’s important to recognize its impact on appraisal value. Older homes typically have a low value compared to newer constructions, which adhere to updated building codes and often have fewer issues. However, your home’s age could actually increase its value if the house is in a historic district. 

Closets And Storage

It may seem surprising, but closets can play a major role in appraisals. Older homes often feature smaller closets and less storage. Since adequate storage space is a must-have for many home buyers, a house with multiple or large walk-in closets, finished garages and finished basements can greatly enhance the property value.

What Can I Do To Prevent A Low Appraisal?

You won’t be able to change everything in your home before an appraisal. Some parts of the process will be out of your control. However, you can take these steps in an effort to prevent a low appraisal:

• Do your own research. This should include the current market conditions and the recent sales price of similar nearby homes, which are referred to as comparables or comps.
• Provide proof of upgrades. If you’ve made upgrades to your home, show proof. Create a file that details all of these home improvements and includes sales receipts.
• Inspect the interior and exterior of the home. Examine the major systems and appliances in your home and note any areas of concern. If something needs to be repaired or updated, get it done before the appraisal.
• Improve your curb appeal. This is what the appraiser will see first when they arrive at your home, so it’s good to start off on the right foot. Curb appeal can also indicate you’ve maintained the rest of the home, so clean up your exterior if it looks a little ragged.
• Make sure your decor and home improvements aren’t too personalized. You’ll want a potential buyer to be able to picture themselves in the home, and the appraiser will be able to sense when potential buyers won’t be able to do that.
• Clean up messes and clutter. A clean home free of clutter makes rooms look bigger and more spacious, allows the appraiser to better view the features of your home and shows you take care of the home.

If you have concerns about the potential for a low appraisal, talk with your real estate agent and see if there’s anything else you or they can do to prevent it from happening.

The Bottom Line: Take Time To Understand What Hurts A Home Appraisal

An appraisal helps buyers ensure they’re paying a fair price for a home and helps prevent them from owing more on their loan than the home is worth. Appraisals also help a lender determine how much money they can loan you for your purchase or refinance transaction. Knowing how to get the highest appraisal on your home and taking the right steps to prepare for a successful appraisal can be a big help – whether you’re a buyer, seller, lender, or homeowner looking to refinance.

If you’re ready to embark on the home buying or refinancing process, you can start your application with Rocket Mortgage^®.