Sometimes reading and understanding an appraisal report seems like an unsolvable mystery. A good appraiser actually has certain criteria that he/she looks at when valuing a property. Here's the inside scoop on four factors that can greatly affect the appraised value on your home:
1) Comparables
Comparables ("comps") come up again and again when you're talking appraisal, and for good reason! Using the Sales Comparison Approach (which is the main approach used in most residential appraisals), comps are the main indication of value. If you are getting your home appraised, it doesn't hurt to check online and see if there have been any recent sales in your area. If you're not sure what would make a sale a comp for your home, check out this blog post. While a recent sale in your neighborhood is by no means a guarantee for either high or low value, it can definitely affect the appraisal. However, rest assured that a good appraiser will not just automatically use the most recent sale, regardless of the kind of sale (REO, short) or condition of home.
2) Location & Neighborhood
As the saying goes, "location, location, location!" Home values are greatly dependent upon location. We did an appraisal on a property that was a meticulously landscaped 1/4 acre with a well maintained bungalow home-- everything was in great condition, the property had character and would normally be highly desirable. However, it was located directly next to railroad tracks with freight trains going by several times a day, and on the other side, there was a mechanic's shop. As you can imagine, these location factors brought the value down much lower than if it had been in a residential neighborhood of similar homes. The fact is that location factors such as railroads, being on a busy street or freeway, etc, can negatively affect the market value of the home because buyers are less likely to want to buy that house. In the same way, a house being close to a park or great schools or on a secluded street, etc, can improve value by making a location very desirable. Sometimes location factors are not as obvious as the house next to the railroad, which is why it is important for appraisers to know the area they are appraising. Two neighborhoods right next to each other can be very, very different, and knowledge of the area helps the appraiser know where to select his comps.
3) Upgrades & Condition
This seems obvious, but sometimes the upgrades that you would expect to have a high effect on the value, actually don't! However, overall well-maintained maintenance and enough upgrades to keep things from looking outdated do really affect the value. If the home has been well-maintained and is in good condition, then we can use comps that are in the same condition. If a comp is in great condition and the subject has not been updated for 15 years, then the subject's value will probably be lower than that comp.
4) Conformity
This fits in with #2, Location & Neighborhood, but it is worth talking about on its own as well. Conformity refers to the home "fitting in" in the neighborhood. In the example with the railroad tracks, the subject did not conform because it was a residential property in a commercial/industrial area. However, a home might not conform in a purely residential area. If a home is painted bright pink on a street of earth toned homes, that house does not conform. This would be an easy fix-- paint the house beige. But some fixes are not so easy. We appraised a house that had had many additions throughout the years: it had started around 1500 SF, and was now almost 4000 SF! The owners loved it, however, there were no homes of that size within a pretty large radius of the house. This meant that the home did not conform to the neighborhood, which in turn meant there were no comparables, which meant that the home definitely did not come in as high as the owners anticipated.
If you have any questions on any more factors that affect home value, or are interested in getting a home appraisal, give us a call today! We are always happy to answer questions.
