Factors That Affect House Appraisal Value

A house appraisal is a critical part of the home buying process for both buyers and sellers. A low appraisal can make or break your real estate deal, so you must know what goes into valuing a property.

What is a House Appraisal?

A house appraisal is a professional assessment of a property’s fair market value conducted by a licensed appraiser. The main purpose of an appraisal is to protect the lender by making sure the house is worth what they are lending out for it. The appraisal also protects the buyer by preventing them from overpaying for a house.

Is a House Appraisal the Same as a Valuation?

No, a house appraisal value is not the same as a real estate agent’s valuation, although they might arrive at the same number. While a real estate agent’s valuation helps the listing prices for the home, an appraisal is an official valuation that lenders use to determine whether to approve a loan application.

What Do House Appraisers Look For?

Appraisers conduct extensive research and analysis, using both objective measurements and informed subjective judgments about the property’s condition and appeal. Here’s what they take into account when determining the appraisal value of a house:

Property Condition and Features

The appraiser conducts a thorough evaluation of the interior and exterior of the house, moving from the larger elements such as lot size to interior features such as closets and storage, as well as aesthetic features like landscaping.

Elements that go into the appraisal value of a home can include:

• Square footage of the home and lot size.
• Curb appeal and landscaping, including grading and drainage.
• Driveway and pathway condition.
• Conditions of outdoor structures like garages, decks, or garden sheds.
• Roof condition and age.
• Type and condition of exterior materials (siding, brick, stucco).
• Foundation condition.
• Overall condition of the home’s structure and materials used.
• Building code and safety bylaw compliance.
• Age and functioning of HVAC, plumbing, and electrical systems.
• Number of bedrooms, bathrooms, and other rooms; floor plan layout and flow, including additional living space like finished basements and attics and additional living units within the home.
• Kitchen and bathroom updates.
• Flooring types and condition.
• Closets and other storage.
• Energy-efficient and smart-home upgrades.
• Overall maintenance, upkeep, and cleanliness.

Comparable Properties

In addition to features and condition of the property, a home appraisal will incorporate comparable sales in the area, especially homes that have sold within the last 6 months, adjusting for current market factors.

Location and Neighborhood Factors

The appraiser will also look at the location and the neighborhood, including school district quality, proximity to amenities, public transport, and arterial roads, neighborhood safety and crime statistics, and future development plans in the area such as additional construction, new parks and community centres, and infrastructure upgrades.

The Home Appraisal Process

For real estate transaction purposes, the mortgage lender orders the home appraisal and arrangements are made with the seller to access the home. The appraiser assembles information about the home, market conditions, and the home’s location and neighborhood to arrive at the appraisal value of the house. In a few days, the appraiser delivers a report to the lender.

Factors That Can Lower a Home Appraisal

Several factors can result in a lower appraisal value, many of which are outside a homeowner’s control.

Weak comparable sales can have a significant impact. If nearby homes have recently sold at lower prices (especially due to distressed sales), it can drag down your home appraisal, even if your property is in excellent condition. Market conditions also matter; if the housing market is slow or prices are fluctuating, the valuation of the home could be lower. Homes in areas with declining market demand, high crime rates, poorly rated schools, or few amenities also tend to get lower home appraisals.

Other negative factors include outstanding maintenance issues, even minor ones, and home layouts and features that don’t match what current buyers are looking for (e.g., too few bathrooms and not enough electrical outlets).

Factors That Raise a Home Appraisal

A higher house appraisal value usually comes from a combination of strong comparables, a desirable location, and a well-maintained home that meets buyers’ expectations, with modern layouts, ample living space, and functional updates.

Homes in sought-after neighborhoods, with highly rated schools, low crime rates, good walkability, and access to transit, also tend to get higher home appraisals.

Stable or rising market conditions can also lead to a higher house appraisal, especially in desirable markets where demand outpaces supply.

What Happens if a Home Appraisal is Low?

If a house appraisal comes in low, the deal may not close at the agreed-upon date or price. A low appraisal can even lead to the deal being cancelled.

Since most purchase contracts have an appraisal contingency, the buyer can use this to ask the seller to renegotiate the price. If that’s not possible, the buyer can pay the difference between the appraised value and the purchase price in cash. Barring that, the appraisal contingency gives the buyer the right to back out of the deal without penalty.

Can You Dispute a House Appraisal?

Yes, you can present evidence supporting a higher appraised value, such as more suitable comparables or information about the home or its location that is not included in the appraiser’s report. You can also order a second appraisal at your own expense, although the lender is not obligated to accept it.

Although it is possible to dispute an appraisal, buyers should keep in mind that appraisals are designed to protect them from overpaying for a home. A thorough, accurate appraisal ensures you’re making a sound financial decision.

How Long Does a House Appraisal Last?

House appraisals are typically valid for four months, but some loan programs allow a longer validity period and could offer extensions.

In some cases, a new appraisal could be ordered within the four-month timeframe. For example, if there are major property modifications or damage to the home, or the market is extremely volatile, the lender might want an updated home appraisal. Lenders might also order a new appraisal if their lending policies change.