The appraisal process is one of the key components in any home sale. A real estate appraisal is an expert valuation of a house and the property it is located on. Although appraisals are widely used to determine the true value of a property in the event of a home sale or mortgage refinance, many misconceptions surround them. Today we are dispelling these common appraisal myths.
Home Appraisal = Home Inspection
Many people need clarification on the functions of a home appraisal and a home inspection. A home appraisal is the valuation of the property and home, and a home inspection is an examination that determines the home’s condition.
The More Updated the Home, The Higher The Value
This may be one of the biggest misconceptions about residential appraisals. Many homeowners “prepare” their homes by sprucing up their landscaping and ensuring their house is meticulously cleaned. However, while these items do make a home show well, they don’t necessarily change the property value.
Updated Maintenance Items Will Increase the Value
It can be very costly to maintain a home. For example, updating major systems in a home, such as heating and air units or a hot water heater, can cost thousands. Some other costly expenses are replacing the roof or updating windows. So naturally, homeowners want to see that the
money they spend on these big-ticket items will directly translate into a higher appraised value. However, the truth is these items don’t increase the value of a home; they keep the value from depreciating.
The Appraiser Works for a Particular Entity (Buyer, Seller, or Bank)
An appraiser is an independent third-party professional who is not looking out for the interests of any parties involved. Instead, they are simply determining the value of the property and home in relation to the current market conditions.
Appraisals are most commonly used to determine the loan value of a property. However, they are also used to determine the amount of equity that is in the home. The chart below demonstrates the loan-to-value on a mortgage or the amount of equity in a property based on the appraised value of a home.
Loan Amount/ Sales Price Appraised Value Loan to Value Equity in Property
$300,000 $350,000 85.7% $50,000
$300,000 $400,000 75% $100,000
Confused? A lot goes into a real estate transaction, and I would be happy to clarify any questions you have. Reach out!
If the appraisal is so far off that it threatens your home purchase, you can ask for a reevaluation if you genuinely think there’s an error. Although it’s rare, appraisers can make mistakes, and you have the right to see the appraisal report if you want to. You also have the right to check through all the data used to develop the appraisal. If you see some big mistakes, a reevaluation is definitely in order.