Home appraisal: What's your home really worth?

Whether buying, selling, or refinancing your home, the appraisal process is a critical step. Everybody wants to know what it's worth. FOX 5 Real Estate Expert John Adams dropped by Good Day to give the definitive answer.

A home appraisal determines the fair market value of a property, ensuring that buyers, sellers, and lenders have a clear understanding of its worth.

How the Home Appraisal is Conducted

Appraisers use three primary approaches to determine a property’s value:

1. Replacement Cost Method: This estimates the cost to rebuild the property from scratch, considering current material and labor costs. While helpful for unique or specialized properties, it often fails to reflect market dynamics or buyer behavior.

2. Income Method: Used for income-generating properties like rentals or commercial buildings, this calculates value based on the property’s income potential. For most residential homes, this method is less relevant unless the property is being evaluated as a rental investment.

3. Comparable Sales Method: The most commonly used approach for residential properties, this method evaluates the property’s value based on recent sales of similar homes in the area. Appraisers compare location, size, condition, and features of comparable properties ("comps") to determine a fair market value.

Among these, the comparable sales method best reflects typical buyer behavior, as it aligns closely with what buyers are willing to pay in the current market.

Factors That Affect Home Value

Several factors influence the appraised value of a home. Key considerations include:

• Location: The neighborhood, proximity to schools, transportation, and amenities.
• Size and Layout: Square footage, number of bedrooms and bathrooms, and overall functionality.
• Condition: The amount of maintenance, system updates, and finishes.
• Upgrades: Quality renovations like remodeled kitchens or bathrooms.
• Market Trends: Local real estate conditions and recent sales prices.
• Curb Appeal: Landscaping and external aesthetics.

Avoiding Issues with Low Appraisals

A low appraisal can derail a transaction, and it is nearly impossible to get an appraiser to revise their valuation after the fact. Instead, proactive measures can help you avoid this situation entirely:

• Get a professional appraisal before listing: By hiring an appraiser before putting your property on the market, you’ll have a reliable estimate of its value. This step helps set a realistic asking price and minimizes surprises later.
• Leverage the pre-listing appraisal: If a buyer’s lender orders another appraisal, your initial report can justify the contract price and provide strong evidence of the property’s value.
• Work with a knowledgeable agent: An experienced real estate agent can guide you in presenting your property effectively and ensuring appraisers have access to all relevant information.

By taking these steps, you’ll be better prepared to manage the appraisal process and maintain control over your transaction. 

Understanding the home appraisal process and its impact on your transaction is essential. By proactively obtaining an appraisal before listing and using it to support your pricing strategy, you can reduce the risk of complications and ensure a smoother transaction. With preparation and insight, you’ll be well-positioned to achieve your real estate goals.