If you’re thinking about selling your home, you’re going to need to know what it’s worth in today’s housing market. If you’re already in the thick of buying or selling a house, what the appraiser has to say can make or break the deal. Wouldn’t it be nice to have at least a little bit of an idea what the appraiser is looking for? Read on for just that!
Factors that Affect Home Value
There are several factors assessed in a standard appraisal that affect home value, including:
- Sales history (past sale prices)
- The area where the home is located
- The homes stats (square footage, number of bedrooms and bathrooms, etc.)
- The property the home sits on
- Renovations and improvements
- Recent sale prices of comparable properties
How do Appraisers Determine Home Value?
Appraisers use a complicated equation to determine how these and other factors affect your home’s value. However, the above-named factors have the most impact on the appraiser’s final, official, and unbiased opinion of how much your house is worth.
The appraiser will generally start the appraisal process by collecting data. They’ll find out how much the home has sold for in the past, research sales and home values in the neighborhood, get the particulars of the home, and look up the sale prices of comparable properties in recent years.
The Approaches Appraisers Take to Find Home Value
There are a few different approaches appraisers use to calculate a home’s value. Here’s a simple run down of those.
Sales Comparison Approach
This approach uses the most recent sale prices of at least three neighboring properties to determine the value of home in question. Particularly if the property is unique (in general or simply to the area), more recent sale prices will be needed to get an accurate value assessment.
The cost approach uses the estimated cost to replace the home. They’ll add together the value of the land that the home sits on plus the cost of labor and materials in the area in question to put together a per-square-foot value. From there, the appraiser subtracts the home’s depreciation based on age and wear and tear. These estimates are generally put together using industry reference publications and the insider knowledge appraisers gain through training and experience in the industry.
This approach doesn’t necessarily apply to regular residential properties, but it may be helpful to understand it, anyhow. It assesses how much an investor could stand to make from the property if it was used as a rental or other type of income property and then judges how much should be paid for the property based on that income potential.
When Does an Appraisal Take Place?
Under most circumstances, an appraisal will need to be performed in order for a property to sell. Most lenders require an appraisal, and in many cases, it’s also required by law. The appraisal is generally paid for by the buyer at closing.