A property appraisal is the most crucial aspect of lending.
Lenders understand that after a mortgage transaction is complete, circumstances can change for the applicant. Credit scores, assets, and income can change for the borrower at a moment’s notice. What cannot change on a whim is a collateralized house. Houses get collateralized by way of a property appraisal.
A property appraisal is an estimation of value supported by independent marketplace data.
Licensed appraisers make these estimations. They inspect the property based on the condition of the land, property, and its surroundings. Also considered is the marketability and appeal of the area and property.
Because of how important the appraisal process is for a borrower to get the mortgage they want, let’s look at it step by step. Along the way, we’ll provide some tips on how to prepare your property for an appraisal. This knowledge will help you get the highest possible valuation on your property.
How do appraisers determine the value of a property?
Appraisers use different approaches to determine the value of a property. The sales comparison approach develops an opinion of value by comparing the subject property with ones that are similar. Because it’s based on market activity, some say this is the most useful and accurate approach.
The income approach estimates the value of a property by evaluating the revenue the property currently generates or could generate. This is most often used for commercial and investment properties.
The cost approach calculates the cost of the land, site improvement, the cost to build a structure on the land, and the cost of any depreciation. This gets used for newer properties. It is also used for special purpose properties that don’t produce income. These include hospitals, schools, and churches.
Our clients often ask us to explain the appraisal process from start to finish.
The first part is the actual property inspection. The appraiser will examine and photograph the interior and exterior of the property. Then, they will examine the surrounding area and research recently sold properties. This is all put into an appraisal report.
The size, condition, and structural problems of the property are in the report. Also included will be all relevant photographs and blueprints. Past property renovations will be in the report, with the market analysis performed after the property inspection.
The earlier you get your property appraised the better.
Whether you are preparing to sell your home or refinance your current mortgage, getting an appraisal as early as possible will give you more time to fix any issues with the property.
Small fixes can go a long way.
According to the 2020 Cost vs. Value Report, minor kitchen remodels in the New York City area cost $30,000 on average and recouped 85% of the job cost. Major kitchen remodels cost $84,000 on average, recouping only 61% of the job cost. Before getting your appraisal scheduled, look at the property yourself. Do this with the help of previous appraisal reports. To get the most bang for your buck, focus on the minor repairs you can make to up the property value.
Landscaping is important.
Taking good care of your front and backyard is another low-cost way to make your home more marketable, in turn boosting its value. If you aren’t sure where to start, click here for some DIY landscaping tricks!