The basics of appraising new construction
- Building plans - The design for the home. ...
- Spec sheet - Short for "specifications," this document describes the exact materials to be used in the home's construction. ...
- Cost breakdown - An analysis of the total expenses incurred during the construction of the home. ...
- Plot plan - Essentially, a blueprint for the surrounding property. ...
Why do I need an appraisal?
What is a home appraisal, and why do I need one?
- A home appraisal ensures that you don’t overpay for a property
- Most mortgage programs require home appraisals
- Appraisals may identify other problems with the property, such as zoning issues
How to appraise your own house?
What Do Banks Use to Determine House Value & Home Equity?
- Understand Fair Market Value. Most homeowners look at websites like Zillow and assume that their home value is pretty close, if not the actual estimate listed on the site.
- Determining Appraised Value. A bank uses a licensed appraiser to determine the current price of a home. ...
- Calculating Home Equity. ...
How long is an appraisal good for?
Home appraisals aren’t good for longer than 90 days because there is no way to predict what may happen to the market over a longer period. In an appraisal, a professional appraiser compares the condition of your property to similar homes recently sold in the area to determine its market value.
How long does an appraisal take?
The result is a final document that identifies the appraised value of the home. Conventional loan appraisals are usually around 10 pages long and take about a week to complete. FHA loan appraisals often take a bit longer, because they’re government-backed and require more documentation.
What approach to appraisal is best for new construction?
Cost ApproachCost Approach Best Reflects Rising Material Costs In new home construction, it is particularly important the appraiser account for and appropriately balance the cost of materials used to construct the home with its current market value.
What happens if a new build doesn't appraise?
But, if this home does not appraise for its estimated value, and you've already bought the home and built it, you may need to either try a new lender, get a new appraisal, or ask the builder to take less money. If the low appraisal is the builder's fault, you may actually be able to sue your builder.
What do appraisers look at the most?
Appraisers look at the size, shape and topography of the lot, including easements and encroachments. The appraiser will also note amenities such as street utilities and vehicular access. Part of the evaluation process includes an opinion of whether the home's characteristics are compatible with the market.
What are the main things an appraiser looks for?
What does a home appraiser look for?The condition of the home (are there any cracks, damages, leaks, etc.)The size of the home and the property lot.The quality of landscaping.The quality of roofing and foundation.The number of bedrooms and bathrooms.The quality of lighting and plumbing.The number of fireplaces.More items...
What hurts a home appraisal?
Things that can hurt a home appraisal A cluttered yard, bad paint job, overgrown grass and an overall neglected aesthetic may hurt your home appraisal. Broken appliances and outdated systems. By systems we mean plumbing, heating and cooling, and electrical systems.
What decreases home appraisal?
In some instances, home appraisals can come in low because values have declined in the neighborhood, improvements need to be made to the dwelling or the buyer has simply offered too much.
What should you not say to an appraiser?
Just keep your communication to the appraiser about the facts of the home and neighborhood, how you priced the house, and any other relevant information you think the appraiser should know. And remember, don't discuss value. Don't pressure the appraiser to 'hit the value' and you'll be fine.
Does cleanliness affect a home appraisal?
Unless the amount of clutter begins to affect the structural condition of a home, it will not affect an appraisal. The cleanliness of a home also has no impact on the value. It is not uncommon for an appraiser to walk into a cluttered, messy home.
Do appraisers look at foundation?
Exterior — Appraisers will assess the structural basics of the home and the size and condition of the surrounding property. Checks include the integrity of the foundation and roof, any issues with siding, guttering or soffits, and evidence of leaks, cracks or water damage.
Do appraisers look at HVAC?
Your appraiser will look at your HVAC system to confirm that your heating and air conditioning are in working order.
How do I get the highest appraisal on my house?
How to Increase Home Value for AppraisalImprove your house's curb appeal. ... Mow and clean up your yard. ... Examine the exterior of your home. ... Document all of your home upgrades. ... Give your home a deep cleaning. ... Patch up any imperfections. ... Let the appraiser do their job. ... Be open to the appraiser's questions.More items...
Do appraisers look in refrigerator?
Appraisers will also look closely and itemize all appliances and fixtures installed in the home, including the dishwasher, refrigerator, washer/dryer, oven, and others. The appraiser will also be very interested in any improvements you made to your home, as well as the quality of those improvements.
How do I get the highest appraisal on my house?
How to Increase Home Value for AppraisalImprove your house's curb appeal. ... Mow and clean up your yard. ... Examine the exterior of your home. ... Document all of your home upgrades. ... Give your home a deep cleaning. ... Patch up any imperfections. ... Let the appraiser do their job. ... Be open to the appraiser's questions.More items...
Will an appraiser look in my refrigerator?
Appraisers will also look closely and itemize all appliances and fixtures installed in the home, including the dishwasher, refrigerator, washer/dryer, oven, and others. The appraiser will also be very interested in any improvements you made to your home, as well as the quality of those improvements.
Do appraisers turn on faucets?
Appraisers flush toilets, turn on all faucets and ensure that both hot and cold water are working. The water heater must be in working order and strapped according to local code.
Does Number of bedrooms affect appraisal?
Number of Bedrooms The number of bedrooms in your home will also increase your home appraisal value. The home appraiser will compare your home to other homes in the area with the same number of bedrooms to make a value comparison.
How many comparable sales are required for appraisals?
Most lenders require at least one comparable sale within a mile of the subject property on appraisals in and around the beltway. Sales outside a mile or in other jurisdictions or areas that compete with the subject market can be used if they are considered necessary by the appraiser to yield a credible estimate of value.
What is more accurate, a spec sheet or a plan?
The more accurate and detailed the plans and spec sheets are the more likely the appraiser is going to be able to discern the level of construction and finish in your new home. The appraiser will very often have discussions with the builder representative and in some instances the borrower to confirm or get a better sense of the spec sheets, ...
Do hardwood floors add value?
Ed: I believe hardwood floors have the most substantial impact on value relative to their cost. Buyers want hardwood floors on the main level and they want hardwood staircases to the second level. If a purchaser can allow for it in their budget, I would also suggest hardwoods on the second level landing and hall. Additionally, in the northern Virginia market, purchasers want walk out or walk up basements. I believe that you are stepping over a dollar to pick up a nickel if you eliminate these items from your construction project. The cost of installing a wet bar in a basement is an item that does not typically add a tremendous amount of value relative to its cost.
Do you need an appraisal for a new construction project?
If you are financing your new construction project, your lender will need to order an appraisal of the property. We get questions all the time about what appraisers are looking for and how in the world they can appraise a house before it is even built.
How far ahead of appraisal does FHA require you to gather information?
FHA requires that you gather information and execute tasks weeks ahead of the appraisal order.
Why don't builders want to see comps?
They don’t want to see all the comps by the same builder because the builder could be inflating the value of property. Additionally, to demonstrate the marketability of the area, some require you to provide a comparable sale from a competing subdivision, built by another builder.
What is the final inspection required for FHA loans?
FHA requires that you gather information and execute tasks weeks ahead of the appraisal order. FHA requires a final inspection. The final inspection can take place if the improvements are within 90% of completion and must be done by an appraiser. Appraisers must complete Form 90251 for FHA loans.
What to do if you can't find recent sales within the immediate neighborhood?
If you can’t find recent sales within the immediate neighborhood in the past 6 months, you may expand your search to other neighborhoods or go back further in time—even if doing so is outside the lender’s guidelines. Do so only if those comps are necessary for you to create a credible estimate of value.
How to allocate land to improvement value?
Allocation method:Here, you use several sales in the subject subdivision and take the cost of construction from the total sales price to arrive at a site value. Use several sales, get an overall ratio of land to improvement value, and then apply that ratio to the subject property.
Does Fannie Mae allow appraisers to use plans?
Fannie Mae allows appraisers to use plans or a model home that is similar to the proposed construction, to come up with a preliminary value.
Can custom built homes be comparable?
Plus, custom-built homes recently built in the neighborhood cannot be considered as comparables unless they have been exposed to the market and to a typical buyer—and not just to the person who requested the custom features and design in the first place.
What does an appraiser look for?
Schley explains that an appraisal report usually involves a description of the property, details about its location, an analysis of use, a review of nearby similar properties, and, finally, information regarding local real estate trends.
What style of home should an appraiser consider?
Design and style. An appraiser will consider the architectural style of the home. Think modern, ranch, craftsman, colonial, mid-century, and so on.
Why do appraisers use comps?
Agents use comps to help sellers determine a listing price, appraisers use comps to help confirm market value, and prospective buyers often take comps into account without even realizing it . If you’ve ever said something along the lines of, “This one is nice, but the house two streets over is the same price and has a three-car garage,” then you’ve considered comps!
What is an appraisal report?
Schley explains that an appraisal report usually involves a description of the property, details about its location, an analysis of use, a review of nearby similar properties, and, finally, information regarding local real estate trends.
What does it mean when an appraiser sees a need for repairs?
This could mean anything from a deteriorating door frame to a cracked toilet tank.
What issues should an appraiser look for in a house built in 1976?
This is where an appraiser will check for expensive problems with the home. Issues like water damage, electrical hazards, pest infestations, and other safety or financial hazards. Livability.
What does an attic appraiser do?
Attic details. Likewise, if the home has an attic, the appraiser will evaluate the size and condition of the space.
What is the role of appraisal in construction?
The Role of the Appraisal Process in Construction Financing. An appraisal is an opinion given by a licensed appraiser on the value of a property. The appraiser must follow set rules when appraising a property.
Why is appraisal important for a loan?
Because a loan for new home construction can present several risks for a lender, the appraisal plays a key role in determining whether the lender will approve a borrower for a loan and for how much. In many cases, an appraisal can even be the cause for loan denial.
How Long Does the Appraisal Process Take?
So how long does a construction loan appraisal take? The appraisal itself can take two to four weeks or even longer if the area is farther away from where the appraisers work and live. Keep this general timeline in mind as you’re getting into the appraisal process.
What is URAR in appraisal?
Fannie Mae developed the Uniform Residential Appraisal Report (URAR) to allow home appraisers to produce credible appraisals on both existing and new construction homes. Appraisers can combine this URAR with the estimated cost of the land and builders’ documents to determine home values for construction homes.
What is the final inspection report for a new construction home?
When the house is complete, the appraiser will provide a “Final Inspection” report. The appraiser of the new construction home will send the appraisal to your mortgage lender to use when deciding on your loan. Here are some new construction appraisal guidelines to follow. 1.
What do homebuilders give to mortgage lenders?
Homebuilders will give mortgage lenders a home’s building plan, cost breakdown list, plot plan and spec sheets for an appraisal. The more detailed and accurate spec sheets and home construction plans are, the more likely an appraiser can determine the level of finish and construction in your future home.
What should a home builder keep?
Builders should keep a building plan for the home they are constructing and specifications that list the construction materials used. Builders will also keep a cost breakdown list for the labor of each home they build. The plot plan for a new construction home should show where it will be located on the site, along with where any accessory buildings will be located. Homebuilders will give mortgage lenders a home’s building plan, cost breakdown list, plot plan and spec sheets for an appraisal.
What Does the Appraiser Look for?
So, what does the FHA appraiser look for during this process? The primary areas of inspection are the roof, the foundation, lot grade, ventilation, mechanical systems, heating, electricity, and crawl spaces (when present).
How to do a home appraisal?
At a minimum, the appraiser must complete the following steps: 1 Visually inspect the subject property both inside and out. 2 Take photos of the property to be included within the loan file. The photos must show the sides, front and rear of the home, as well as any value-adding improvements such as a pool or patio. 3 Take a photo of each comparable sale transaction that is being used to support the appraisal. 4 Obtain and provide a copy of a street map that shows the location of the property and each comparable sale, or "comp," used during the valuation. 5 Take photos that show the grade of the lot, if it's a proposed construction.
What is the difference between a FHA appraisal and a regular appraisal?
So the primary difference between FHA and regular appraisals is the level of inspection that is required by HUD. If the HUD-approved appraiser flags certain issues -- such as peeling paint, loose handrails, or other safety issues -- those issues must be corrected before the loan will be funded.
What is an appraisal for a FHA loan?
An appraisal is an expert assessment of a particular product or asset (in this case a house) to determine its value. Within the context of FHA loans, the purpose of the appraisal is to determine the market value of the home that is being purchased. During this process, the appraiser will look at comparable properties that have sold recently, ...
What is the purpose of an FHA appraisal?
The Department of Housing and Urban Development (HUD) requires him to determine the current market value, as with any appraisal. But they also require a property inspection to make sure the home meets HUD's minimum standards for health and safety. This is the "double duty" mentioned earlier. It's what makes the FHA appraisal process unique.
What is a conventional appraisal?
Conventional: In a typical real estate transaction, where a conventional (non-government-insured) home loan is being used, the appraiser is mostly concerned with the current market value of the property in question. That is his primary objective when visiting the house.
Why should a bedroom be egress?
All bedrooms should have egress to the exterior, for reasons of fire safety. A bedroom window will suffice, as long as it's large enough to allow egress.
How much does it cost to have a home inspection?
Daniels says that even for new construction, he recommends hiring a home inspector. For around $350 to $600, an inspector will take a comprehensive look at the whole home — a wise investment!
What comes first, curb appeal or landscaping?
Curb appeal comes first. Check the landscaping carefully. How’s the grass doing? Are these the plants you chose? Do they show any signs of distress at this point?
How to check for drainage issues in yard?
Turn on all outdoor hose spigots to check for flow and pressure. Better yet, bring a garden hose along and spray around the exterior, watching for drainage issues. Is the water flowing away from the house as it should? Are there any low spots in the yard that need to be filled in, especially around the foundation?
How to check HVAC system?
The HVAC system is a big expense, so make sure all’s well there. Bump the thermostat up and down (not all at once; Wait appropriately) to ensure that both the heating and cooling sides are responding. Bring a piece of tissue paper to test that the intakes are pulling air in and hold a hand up near the vents to check the flow.
What areas of the house need attention?
Finally, the attic and basement areas will need your attention.
Can you sign closing paperwork for a new home?
You’ve picked out all your fixtures and finishes. You’ve selected your flooring and paint colors. Now the new house you’ve been waiting for is ready! Finally, you can sign your closing paperwork and move in. Sure, there’s a final walkthrough, but with a brand new home, that’s just a formality — right?
The General Condition of The Home
- Before getting too granular, the appraiser will note general details in the home, such as the materials used throughout the home, the condition of the property, and any alarming physical aspects of the property that may impact its habitability. This is one of the first things appraisers look for! If anything seems structurally unsound or unsafe to ...
The Home’S Location
- Appraisers will look at the home's location. When conducting an appraisal, the appraiser will consider where the home is located. Location plays a critical part in valuing a home. They will assess the home’s proximity to desirable schools, a low crime rate, and the home’s proximity to a hospital, fire station, and police station. They will assess whether or not the home is located on …
The Age of The Home
- One thing many people don't account for that appraisers look for is the age of the home. There are advantages and disadvantages to both new and old homes, so a home isn’t necessarily guaranteed to appraise just because it’s new. Older homes are sometimes maintained far more and are located in historic districts whereas newer homes may come with problems. Nonetheles…
The Home’S Exterior
- A home appraiser will take time reviewing the exterior of the home to ensure it is structurally sound. They will look for any signs of water damage or other problems, such as a chimney that is cracked or leaning away from the home (which could indicate structural damage) along with a lopsided porch or stairs leading up to the home. The quality of the roof will also play an importa…
Design of The Home
- If your home is extremely dated and hasn’t been updated in several years – or decades – the appraiser will take that into account. If the home is outdated, it will appeal to a limited number of buyers and may be more challenging to sell.
Signs of Water Damage
- Water damage brings a host of issues in a home, including mold, mildew, rotting, and more. The appraiser will look for water in the basement, plumbing problems, roof leaks, and any stains on the ceilings, floors, or walls. If there is minor water damage in your home, you may be able to take care of the problem on your own to keep your buyer from walking away from the deal. Water da…
Size of The Home
- When appraisers appraise your home, they consider other homes that are similar in size in your area. They will take your home’s square footage and the number of bedrooms into strong consideration when determining your home’s value. The home appraiser will also assess the size of the lot the home sits on. The garage size will be a contributing factor, as a home with a 3 or 4 …
Home’S Interior
- The appraiser typically spends the most amount of time inspecting the home’s interior. An appraiser will assess the structure and overall condition of a home. When assessing the home’s interior, they will typically start with the number of bedrooms and bathrooms and whether or not there is a basement, attic, or crawl space. They will take note of the home’s foundation type and …
Home Improvements
- If any rooms in the house – especially the kitchen and bathrooms – have been renovated, the appraiser will take note. Energy-efficient appliances or other eco-friendly aspects of the home are also a plus. They will also note a fireplace or a porch, patio, or fence around the house. Certain home improvements add value to a home, while others don't. If your home has central air conditi…
Signs of Infestation
- While the appraiser won’t do a full pest inspection, they will look for signs of termites or other pests on the floors and windowsills. Termites, rodents, and other pests can cause irreparable damage to the home's structure, so this will play a role in the appraisal process.