If you’ve followed my my social media videos or possibly my radio segments, you may have heard me talk about Real Estate appraisals, but today I want to view that through a slightly different lens. Let’s actually refer to it as home value.
Whether we like it or not, determining the value of your home has basic criteria to follow, but at the same time, it’s not an exact science. There are grey areas. Some of those grey areas might revolve around a nicely remodeled kitchen or upgraded bathrooms. It could also pertain to a spacious deck, a new roof, or it might even center around a scenic view. Maybe the property has a waterfront view, or it could be from a mountain top or of a valley. Well, a home seller might want to ask more for their property if they have one of these features, but what equates to value for one person, may not for another and that’s why these are grey areas.
As I’ve said before, the basic criteria used when an appraiser determines value, comes down to the following:
1. Square Footage
3. Number of Bedrooms & Bathrooms
4. Architectural Style
5. Age of the Home
Keep in mind that unfinished square footage such as in some basements or in garages, isn’t calculated into the official total. Having said that, once we have the basic criteria determined, we look for properties which closely match and have sold in the not-too-distant past. We do not consider homes which are still listed because an appraisal probably hasn’t been performed yet.
A good REALTOR® will research the seller’s home, search for comparables (comps) and will then make a recommendation on price. They will take the grey areas into account…but like it or not, a seller probably won’t see a dollar for dollar “Return on Investment” when it comes to the grey areas. If the property is being financed, which is normally the case, there will probably be an appraisal to officially determine the value, and the appraiser has to first follow that basic criteria. This appraiser will begin the same way a REALTOR® does….by finding those comparable properties. They then will get into the weeds of those grey areas before finally providing their opinion of the value.
The lender (aka – the bank) will now loan ONLY the amount the appraiser determined as the value, which is totally understandable. Imagine if the borrower (aka – the soon to be new owner) were to default on the loan in the future. Well, if the lender forecloses on that property, they would lose money if they had loaned more than it’s actually worth.
So, even though the process can be a little frustrating, there’s an understandable reason an appraiser is brought in to determine value. Prior to listing, a good REALTOR® will give you their recommendation so that your selling process goes as smoothly as possible. This is yet another example, as to why you should hire a professional when entering into a Real Estate transaction.
Brian McCommon, 2024 MBOR President