The Factors That Influence a Home’s Appraised Value

It’s time to put your house on the market. You may be wondering exactly how your real estate agent arrived at a sales price and what the factors are that influence a home’s appraised value. Whether you are delightfully surprised or disappointed in the pricing recommendation, it’s helpful to understand how homes are valued. While sales prices are not always exactly the same as appraisal values, they are usually tied together.

Many homeowners invest heavily in renovations, assuming that they will get a large return on the investment. The truth is that most home renovations don’t yield a 100% return. Some renovations yield much less. It’s also normal to feel a sentimental attachment to your home and its memories, but that doesn’t increase a home’s value.

What are the Factors That Influence a Home’s Appraised Value?

Many homeowners struggle with these considerations. That’s especially true when the real estate market isn’t doing well or there is an over saturation in an area that was previously a coveted neighborhood. In this article, we’ll discuss the factors that influence appraisal value of your home.

Age of the Home

First, let’s talk about the age of your home. Typically, there are two types of home buyers: those looking for an older home to renovate and put their “stamp” on the property, and those who are looking for a move-in ready home.

Let’s face it, the older a house gets, the more upkeep it is probably going to need. For example, the cost of a new kitchen could run a potential buyer upwards of $50,000 or more. The older the home, the more likely a buyer will run into further repairs as it ages, such as a new roof, foundation leveling, and more. Unless a buyer is seeking a project, the cost of modernizing, or perhaps simply repairing a property, must be factored into the sales price.

Home Construction and Renovation Quality

The quality of the construction materials used to build a home affects its appraisal value. A house that was built with modern materials (or has been updated) is worth more than a home that was built decades ago and never remodeled. Materials that improve the safety or efficiency of a home, like siding, windows, doors, or the roof, also affect appraisal value.

A seller must also take into account the quality of any renovations completed—were they done flawlessly by a professional, with all of the necessary permits, or did Uncle Connor pitch in on the weekends?

Design Style

“But I have renovated my property,” a seller might say when thinking about pricing and the design of a home. At this point, a seller must stand back and ask themselves if the renovations were what buyers today are looking for, or if the renovations were specific to a homeowner’s particular tastes.

After all, you can take a three-bedroom home and remodel it to look like a medieval castle complete with stone gargoyles and dragons, but that isn’t necessarily going to be an easy sell for a young family.

Home Space and Features

A fairly obvious aspect of a property appraisal is its square footage. Theoretically, a larger property should fetch a higher asking price. However, if the larger property is in disrepair or in need of major updates and renovations to meet modern standards, it could rival a smaller, more contemporary property. The appraisal is assessed by determining a price per square foot, which ultimately determines the sale price and surrounding property sale comps in the neighborhood. We will discuss this in the last section of this post.

After determining the square footage of your home, the next factor to consider is the number and size of the bedrooms and bathrooms. The equation is simple. The more spacious and beautifully designed the bathrooms and bedrooms, the higher the estimated value of the property will be. Today’s buyer is extremely detail-oriented and often has very high expectations when it comes to floor plans and finishes. So, if you are considering completing renovations before your place your home on the market, be sure to pay special attention to these areas in order to maximize the return on your investment.

Location, Location, Location

Next, let’s take a look at the neighborhood where your property is located. Where your home is positioned within the neighborhood is also a factor. A large lot that’s more secluded is more desirable than a small lot on the main road.

There are several other things that increase a neighborhood’s desirability for buyers, bringing up home values. In general, positive factors are good schools, low crime, a walkable neighborhood, well-maintained roads and street lamps, and a high concentration of homeowners rather than renters. Suburban neighborhoods, 20 to 30 minutes from large cities, are also desirable.

Other factors that influence a home’s appraised value (either good or bad) include positive features—things like lakes, ponds, beach access, parks, bike paths, and more. On the other side, things that may lower home values include landfills, power plants, or industrial facilities.

Comps and the Real Estate Market

Comparable homes (also called comps) are one of the most important factors that affects value. Ideal comps are nearby homes that have recently sold and that have similar space, features, and updates. These home values give a baseline for appraisal value. (On a related note, don’t miss our free compcheck tool!)

So, you should make home updates in accordance with what’s already in your neighborhood. Otherwise, a high-end kitchen may not be worth what it would be in a neighborhood that has a lot of them.

Understanding this helps you avoid over-improving or overpricing your home. This maximizes your return on your investment.

If you’d like to chat more about how appraisals work or the factors that influence a home’s appraised value, shoot us an email at [email protected] or call us at (425) 967-3794.

Posted in