Understanding Home Appraisals
June 23, 2017 Home Buyers

understanding home appraisalsHome appraisals can be confusing. The homeowner may feel that their home is worth a certain dollar amount, only to be disappointed that it appraises at another value. Although the disappointment is understandable, know that appraisals are not a just “opinion,” but rather based on guidelines set by lenders and the law.

A commonly known guideline is one that bases your home value on that of similar home sales in the area. Similar qualities such as the size of the home and size of the lot are considered. Your home will also be bracketed according to the value of certain amenities. For example, while there is no set amount associated with a pool, the value will be based on what the local marketplace can support. In other words, if a homeowner installs a pool that costs $30,000, but the local market supports the value of a pool at only $15,000, then that item is bracketed at [$15,000] on the appraisal.

Another area of confusion for appraisals and upgrades has to do with how they are weighed in new homes versus older homes. In newer homes, the full value of the upgrade will be reflected on the appraisal since it required investing extra money in building the home. On the other hand, the total amount invested in upgrading or remodeling an older home is often not expressed in the final appraisal. The reason for this valuation difference is that older homes already had value in their original condition.

Just remember that the local market must also support the value of the upgrades!

Guidelines state that appraisers must place a value on homes that have already sold. However, this is not a hard rule. The appraiser is permitted to increase the value when they deem that property values are rising that area. For this assumption to be valid, however, the appraiser must provide evidence such as comparable pending sales and active listings.

Although there is no formal standard, many lenders allow for a 5% margin of error. However, if the appraiser is off by 8%, it’s likely that the home value will be reduced by 8%. Although its tempting to encourage the appraiser to push the valuation to the higher end of the market, it’s best that the value is not pushed further than the market can support. If the lender suspects that the appraisal is drastically off, it will be subject to more scrutiny, and the value pushed further down.


Ryan Blanco-Realtor-San Diego Real Estate BlogAbout Me: I am a full time agent and I dedicate 100% of myself and my time to my valued clients in addition to the San Diego communities that I serve. It is imperative that I continuously evolve with local and national trends in addition to always looking ahead of the industry. It is a must to always provide the best service to my clients, their families and friends.




Leave a Reply