Whether you're trying to sell your home or refinance your mortgage loan, you won't succeed if your residence doesn't appraise for the right value. And while there's not much you can do to change your home's location or the prices that nearby homes are fetching, there are other steps you can take to increase the odds that your home will appraise for a value high enough to guarantee that sale or close that refinance.
An appraisal is usually a necessity when you're trying to sell your home. The mortgage lender providing dollars to your potential buyers wants to make sure that they're not lending more than what your residence is worth. Most mortgage lenders also want you to have at least 20 percent equity in your home before they'll approve you for a refinance. They send an appraiser to determine the current value of your home so that they can calculate whether you have this equity.
If your home doesn't appraise for a high-enough value? It can scuttle both a sale and a refinance, which is why you must take all the necessary steps to improve your home's odds of nabbing a high appraisal.
Appraisers consider several factors when determining how much your home is worth. They'll look at what buyers paid for similar homes located nearby. They'll consider the size of your home and its number of bathrooms and bedrooms.
Appraisers will also look at the condition of your home and any updates or renovations you've made to it. And this is important; You can't change the location of your home. Unless you're willing to spend a lot of money, you probably won't add a new bedroom or bathroom, either. But you can make sure that your home is in good condition when an appraiser shows up. And this can make a difference.
"Make sure it's clean and clutter-free. Pretend you're having a showing," said Bill Golden, a real estate agent with RE/MAX Metro Atlanta Cityside in Atlanta. "If there are any unfinished projects that would help the value, finish them before the appraiser comes. Saying it will happen later is not good enough. There is not a whole lot you can do to influence an appraisal, but take as many precautionary steps as possible to improve your chances for a good outcome."
Step 1: The best it can be
Jeffrey Tanenbaum, a real estate agent with New York City's Halstead Property, advises homeowners to resist sinking big dollars into their homes before an appraisal. Yes, updating your kitchen will make your home more valuable. But if you spend $30,000 on a kitchen upgrade, the odds are low that your home will appraise for an additional $30,000. You might be spending all that money for an appraisal bump of just $5,000 or $10,000.
Tanenbaum instead recommends that owners spend their money on painting walls, replacing torn carpets and mending cracks in sheet rock.
"Make it look the best it can," Tanenbaum said. "People are human, as are appraisers. If a place is worn, if it looks nasty, if it has torn carpet or if it hasn't been painted in 20 years, this will hurt your appraisal. The most important step is to make your house look its best."
Step 2: Fix what's broken
An appraiser will almost certainly turn on your home's dishwasher. You want to make sure it's working before this happens. In fact, you want all your appliances to work. You also don't want your appraiser to see broken windows or warped floor boards.
If something's broken in your home? Fix it before the appraiser arrives.
Step 3: First impressions matter
Tim Pascarella, senior loan officer with Troy, Mich.-based Ross Mortgage Corporation, says that homeowners should spend money on their home's front lawn and front entrance, too. A home with an overgrown lawn choked with weeds will make a negative first impression on an appraiser, he says.
"Street appeal is one of the biggest things," Pascarella said. "Don't think for a minute that an appraiser when he comes to your house and the street appeal is awful doesn't get a negative first impression. What they see when they get out of their cars matters. You walk to a house and there's grass up to your knees and the landscaping hasn't been touched for two years? That's a bad start to an appraisal."
Step 4: Resist the urge for overkill
If you do plan on updating your kitchens and bedrooms, don't overspend, Pascarella says. You don't have to fill your kitchen with granite countertops. You don't have to include a $4,000 steam shower in your renovated bathroom.
"There's a misconception that people have. They think that appraisers care whether they use the best materials available," Pascarella said. "But that's not true. No one cares that you put Turkish marble in the kitchen. The key is to make an update. You don't have to overkill."
Step 5: Have your agent meet the appraiser
If you're trying to sell your home, it's best to have your real estate agent meet the appraiser at your home, said Golden. Your agent can provide an appraiser with the most recent data from neighborhood home sales, sales that could help boost the appraised value of your home.