A property appraisal is the most crucial aspect of lending.
Lenders are intimately aware of the fact that after a mortgage transaction is completed, 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 properly collateralized by way of a property appraisal.
A property appraisal is an estimation of value that is supported by independent marketplace data.
These estimations are made by licensed appraisers. They inspect the property based on the condition of the land, property, and its surroundings. Marketability and overall appeal of the area and property are heavily considered as well.
Keeping in mind the impact the appraisal process has on a borrower’s ability to get the mortgage they want, we’ve outlined what the appraisal process is. We will also 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 evaluate 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 property being appraised with similar properties. This is arguably the most useful and accurate approach because it is based on market activity.
The income approach is used by appraisers to estimate the value of a property by evaluating the revenue the property currently generates or could generate. This is most commonly used with 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 method is used for newly constructed properties. It is also used for special purpose properties that don’t produce income like 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 thoroughly examine and photograph the interior and exterior of the property. Then, they will examine the surrounding area and research recently sold properties. All of this will be taken and put into an appraisal report.
The size of the property, the overall condition of the property, and severe structural problems will be outlined in the appraisal report. Also included will be all relevant photographs and blueprints. Past property renovations will be in the report in addition to 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, evaluate 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!