Appraisals – Part 1
Appraisals. What are they and what do they mean? When you are buying or selling a property, if there is a loan involved, there is an appraisal done. The bank requires it to protect their investment and make sure the property is worth at least the purchase price. Appraisals can be done if someone is paying cash, as well. The Buyer may want to make sure they are not overpaying for the property. Lastly, a homeowner can have an appraisal completed on their home to come up with a realistic listing price or for home improvement purposes.
An appraiser has very specific criteria he has to follow in order to “prove” the value of a property. They must start with properties within a 1-mile radius of the subject property. If the property is improved upon, they look for same or very similar floor plans first. They take location, upgrades, and condition into consideration. If you have new marble counter tops and your neighbor has Formica from the 70’s, you will get more credit for that. Appraisers will also take into consideration rooms with unique roof lines. For instance, if you finished out an attic space and the roof slants making it impossible for an adult to stand next to the wall, they can only use a portion of that square footage in their measurements, therefore, you won’t get credit for all that room being finished. Bedrooms must have a way to the outside to be considered a bedroom – so an exterior door or window must be present for safety. Basements are another point people question. Basements don’t always get valued the same as above grade areas. There are a lot of varying factors (how much is below grade, ceiling height, finishes, etc.). Be careful not to assume that your price per square foot will be the same on all floors if you have any below grade areas.
An appraiser also must take into consideration the purpose of the appraisal. Different types of loans have different requirements and guidelines that appraisers must abide by. For instance, an appraisal for a VA loan is going to be much stricter than one done for a conventional loan. An appraiser may require some repairs be done on a VA appraisal that he would not require if it was being performed for a conventional loan.
Next week we will talk about appraisals in the buying or selling process and what your options are.
Michelle Froedge is a residential Realtor and Principal Broker in the Greater Nashville and Williamson County areas of Tennessee. “Mom” to four-legged fur baby, Tyler, Auntie to Zelamie, she is a vegetarian and sings in her spare time. Michelle has lived in Nashville and Franklin since 1997 and has been selling homes since 2004.