Surprising factors that can affect a home appraisal

When you buy a home, your lender will order a home appraisal to ensure its value justifies the loan. An appraisal that comes in too low can cause problems because lenders won't allow you to borrow more than a home is worth. You'd have to negotiate a lower price with the seller, make up the difference in cash, or back out of the sale. 

Learn more about the factors that can affect the home appraisal process and what to expect from an appraisal when you’re buying, selling, or refinancing a home.

10 factors that affect a home appraisal

Home appraisers consider the property's condition and features, as well as comparable sales of nearby properties that have sold in recent months.

Here are 10 surprising factors that can affect a home appraisal.

1. Home size and layout

One of the first things an appraiser will look at is the size of the home, including the number of rooms, and the general layout. The number of bedrooms, bathrooms, and half-bathrooms, along with the sizes of the living room, kitchen, and dining room, and the total square footage, are significant influences on a home’s price.

A modern, in-demand layout may have more value, particularly when compared with dated, uncommon, or unusual layouts.

2. Home age and condition

Most people will pay more for a brand-new home in excellent condition than a home in the same spot that’s decades old and poorly maintained. That’s why fixer-uppers cost less than move-in-ready homes.

Older homes are more likely to have plumbing, electrical, or structural problems, such as foundation issues. They also may not be up to code, and the new owner would have to pay for an upgrade or settle for older standards.

3. Home materials

How a home was built and the materials used to build it affect a home's appraised value. For example, luxury tile roofs both look good and are more resistant to fire and hail damage, making a home with this feature more attractive. Homes built with cheaper wood and asphalt tile roofing materials have their own pros and cons.

Appraisers also will consider a home's siding, HVAC system, countertop materials, and flooring. While some areas of the home, like the kitchen, carry more weight, every detail counts.

4. Features and amenities

Unique or unusual home features can add value. Fireplaces, patios, decks, finished basements, sunrooms, dedicated pantries, walk-in closets, walk-out basements, and additional dwelling units (ADUs) are just a few features appraisers will consider.

Some amenities, such as jack-and-jill bathrooms or water features, appeal to a limited number of buyers and have a lesser impact on appraised value. On the other hand, open floor plans are widely preferred by modern buyers and may help a home earn a higher appraisal.

5. Closets and storage

Large, walk-in closets can be very desirable. Built-in closets with drawers, shelving, and hanging fixtures also can add value if they're modern and in good condition.

Additional closets throughout a home, attics, under-stairs storage, and built-in cupboards and shelving in garages and laundry rooms also can boost a home's appraised value.

6. Home improvements

Any improvements you've made since buying the home can add to its value. Some upgrades have a better return on interest (ROI) than others. Even minor upgrades can contribute to a home's overall appraisal.

Kitchen and bathroom remodels and upgrades usually offer the best return on investment. HVAC, siding, roofing, and other changes that are highly visible or make the home more comfortable also are worth considering.

7. Curb appeal

First impressions count. Curb appeal is how attractive a property is from the street. Fresh paint, nice landscaping, and a well-maintained home add to the value. Eyesores such as a dead lawn, overgrown or dead trees, peeling or faded paint or siding, and missing roof tiles can drag down a home's appraised value.

8. Location

Location isn’t everything, but it's a significant factor in determining a home's value. A modest house in Iowa may cost a fraction of what an identical home in San Francisco or New York goes for.

Location matters at all levels. Regional factors, such as proximity to the ocean or a temperate climate, can boost the fair market value. People are usually willing to pay more for walkability, good schools, low crime, and neighborhoods with plenty of amenities.

Rural vs. urban areas, less desirable climates, proximity to different types of businesses and services all play a role in how much someone is willing to pay for a home.

9. Comparable properties

Recent home sales in the area are a good indicator of local market conditions.

Recent sales of comparable nearby homes, also known as real estate comps, give appraisers an anchor point for setting a home's value. Appraisers often look at multiple nearby sales. More comps help appraisers put a more reliable number on a home. With fewer comps, the appraiser may have to look farther away or use properties with fewer similarities.

10. Market conditions

Broad market conditions include national home buying trends, mortgage interest rates, and other economic factors. During good market conditions, home values tend to rise. When the economy is less stable or predictable, real estate prices can stagnate or fall nationwide. Even the time of year, such as summer or the middle of the school year, can shift prices.

But remember that lower prices don't hurt everyone. When prices are down, people may be more motivated to make a purchase. The seesaw of conditions favoring one side or the other is called a buyer’s or seller’s market.

6 things that can hurt your appraisal

Some home features may not be as helpful. And some may not be intentional. What hurts a home appraisal? Here are six problems that can drag down your value, whether you're selling your home or ordering a refinance appraisal.

1. Poor curb appeal

Ugly landscaping, peeling paint, and generally neglected properties can turn away buyers. Appraisers consider these drawbacks when estimating a home's value.

2. Unique or rural homes

Unique and rural homes may be charming or special, but they’ll likely attract fewer potential buyers and have fewer comps. When there are not enough comps to use, appraisers may have to look far beyond the neighborhood, which can lead to less precise results or undervalued homes.

3. Neglected or deferred maintenance

If someone is buying a home that needs $1,000 in furnace work, they'll likely want to pay $1,000 less. Unfinished projects and visible disrepair can be a red flag for appraisers and buyers.

4. Outdated systems, appliances, or interiors

You might describe that old microwave as vintage, but a buyer might think it's just old, ugly, and likely to break soon. Old or outdated elements of a home are not favorable to appraisals. In situations like historic properties or homes designed by famous architects, maintaining the original interiors could be a positive.

5. Pest damage or infestation

Signs of rats, mice, termites, ants, gophers, and other pests can hurt a home appraisal. Even if the underlying infestation is resolved, it’s important to thoroughly clean and repair any damage to maximize value.

6. Personalized features or renovations

Personalized features like painting a unique mural or design can be fun in the moment, but most buyers don’t want to think about previous owners. Plain walls in neutral colors are usually a better pick for appraisal value.

Other unique oddities can also be a negative. Remember, even if you like something, that doesn’t mean most people would want it.

6 ways to prepare for a home appraisal

At the point an appraisal is happening, a buyer and seller have likely already agreed on a price. Having a higher appraisal result could be a win-win for everyone involved.

1. Research market conditions

Take time to review recent home sales and local market trends so you understand how comps may influence your appraisal.

2. Inspect the interior and exterior of your home

Walk through your home with a critical eye, noting visible issues, safety concerns, and necessary repairs that may reduce the home's value.

3. Tidy and declutter

A clean, organized home helps appraisers clearly see the home and its condition without distractions.

4. Make repairs and upgrades

Address minor repairs and unfinished projects before the appraisal to show your home has been well-maintained.

5. Boost your curb appeal

Simple tasks like mowing the lawn, trimming shrubs, and cleaning your home's exterior can create a strong first impression that sets the tone for the appraisal.

6. Provide proof of upgrades

Prepare a list of recent improvements to help the appraiser accurately account for updates you’ve made to the home. Show your receipts, if you have them.

What to do if your appraisal is low

A low appraisal can be frustrating, especially after a buyer and seller agree on a price. Because lenders won’t let a buyer borrow more than the appraised value, a low appraisal can delay or derail the sale.

One option is for the buyer to cover the difference between the appraised value and purchase price with additional cash. This can work for buyers who can afford a larger down payment and are highly motivated to move forward.

Another solution is for the buyer and seller to negotiate a lower price that better matches the appraised value. While not ideal, this adjustment can keep the transaction moving and prevent the deal from falling apart.

Buyers or sellers also may request a second appraisal or challenge the original report with additional comparable sales. However, lenders aren’t required to accept a new appraisal, and there’s no guarantee it will change the outcome.

The bottom line: Understand what factors affect a home appraisal

An appraisal helps sellers price their home well and helps buyers know they're paying a fair price. Appraisals also help lenders determine how much money to lend you. Knowing how to get the highest appraisal on your home and taking the proper steps to prepare for a successful appraisal can avoid surprises, whether you’re a buyer, seller, lender, or homeowner looking to refinance.

If you’re ready to buy or refinance a home, explore your borrowing options today with Rocket Mortgage.

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