Debunking Real Estate Appraisal Myths
Determining the value of a real estate property isn’t as simple as it may seem. Photo: The Dave Keefe Real Estate Team ©2020
If you’re planning to sell your home, one of the first things you’ll need to determine is how much it’s worth. Unfortunately, when it comes to calculating a home’s value, there are a lot of misconceptions that can lead to poor decisions and lost profits. Here are three of the most common myths regarding real estate appraisal:
Myth #1: I can calculate my home’s value using average price per square foot.
In reality, average price per square foot has very little weight in determining the value of a home. Why? Even though it takes square footage into account, it leaves out a great deal of other pertinent factors, such as location, lot size, and bedroom and bathroom count.
Say you have two homes that are roughly the same size, one of which is on a one-acre lot with a swimming pool, the other of which has neither of these features. If you compared these two using only price per square foot, you’d be greatly diminishing the value of the first home. This is a good example of why price per square foot won’t tell you much about your home’s actual market value.
Myth #2: Any money I invest in home improvements will translate dollar-for-dollar into a higher appraisal.
Home improvements may add to your home’s value, but if you aren’t careful, you may end up recouping less than what you put into them. In reality, the value of home upgrades is determined by what the market is willing to pay for them. So, while they may bring significant value in a seller’s market, they may not be as lucrative as you’d hoped in a buyer’s market.
Myth #3: The real estate appraiser’s opinion isn’t that important.
If you’re not satisfied with your appraiser’s estimation of your home’s value, you may choose to simply discount his or her perspective. However, you need to realize that an appraiser’s assessment isn’t merely based on his or her personal judgment; rather, it’s based on specific industry guidelines. Fannie Mae makes the guidelines for lenders and real estate appraisers to follow, and considering the financial stakes in real estate sales, careful adherence to these guidelines is a must.
One of the main criteria an appraiser bases his or her appraisal on is looking at three homes sold in the last 90 days, similar in size and condition, in a similar neighborhood, and within a 10 percent variance of square footage. With this in mind, you as a seller should do your due diligence and be familiar with the recent sale activity in your neighborhood. You’ll also want to learn what home upgrades are actually worth in the current market and which will bring the most value for your investment. Finally, remember that your appraisal can be a powerful negotiating tool since it’s based on industry-established guidelines.
