Real Estate: Property Value Appraisal Methods 101
An accurate appraisal is all important to your financial plan and making intelligent decisions to buy, sell, rent out property, or even borrow against home equity. Banks demand appraisals for all real estate deals attached to mortgage financing.
For existing homeowners, Onyx Investments calculates home equity by subtracting your remaining mortgage balance away from the appraised value of the home. We do expect for home equity to emerge as a key component of your net worth overall, with U.S. median home prices now rapidly approaching $500,000.
Comparable Real Estate
Appraisals reconcile comparable, or comp, real estate prices against the condition of an individual home when estimating property values.
Professionally licensed appraisers initiate valuation models by researching recent sales prices for local real estate. Sales activity is narrowed in scope, according to city, neighborhood, zip code, and subdivision. Here, it is logical for your own appraised property value to closely track home prices for the immediate area.
Size and dimensions are of particular concern for comparable real estate data. The appraisal report will begin by showing like versus like, or sales activity for all two-bedroom, 1,500 square-foot condominiums within a one-half mile radius in the city.
Location. Location. Location.
Like any asset, it is supply and demand the drive real estate prices. We fully expect interest for exurbia and rural homesteads to spike dramatically. For several years running, prominent cultural critics have argued that Web 2.0 technologies will make downtown cores obsolete.
In recent years, housing prices in Maine have nearly doubled, with new construction falling far behind the demand curve of exasperated savers fleeing Big Cities. Maine is the most rural state in America, as measured by the percentage of its population living in urban areas.
Home Amenities and Features
The appraisal report will account for the condition of amenities and features specific to each home. Homeowners are likely to splurge upon upgrades and renovations, with possibilities for return on investment in mind. Landscaping, kitchen, and bathroom updates are especially ideal for strong appraisals.
Single family homes showcasing home office space, hardwood floors, exposed brick, granite countertops and stainless steel appliances are now in vogue – through the post-pandemic era. These real estate trends parallel the ongoing rise of the work-from-home movement.
Mortgage Interest Rates
Mortgage interest rates are leading indicators for housing market performance. Low rates encourage investors to take on calculated risks, improve access to home financing, and strengthen demand. Home prices surged through the COVID-19 era, with cheap money mortgage rates bottoming out at 2%.
The Federal Reserve Board began to aggressively drive rates higher through Q1 2022, with the intent of curbing white-hot inflation. In restricting the money supply, The Fed took its overnight lending rate from zero to 5.25% in two short years.
Mortgages responded in kind. The 30-year fixed mortgage rate now averages 7.5% and is directly blamed for the ongoing housing affordability crisis. Existing homeowners are hesitant to sell out, only to take on new expensive mortgages.
Fewer homes on the market limits supply and ignites bidding wars for anything available. Home appraisals have remained stunningly high, which is a Gift and a Curse, depending upon your side of the negotiating table.
Home Appraisals and Financial Strategy
The bank will order a home appraisal, which you as the buyer will pay several hundreds of dollars for, at the beginning of the mortgage application process.
Most importantly, the home appraisal value must come in to at least equal to that of the agreed upon contract price. Mortgages are secured by real estate collateral; and we expect for the bank to reject any home loan application that calls for it to lend out more money than the property is actually worth.
As a cash buyer, it is still in your best interest to order both a home appraisal and inspection. A weak appraisal and inspection report will grant you bargaining power to demand lower prices, closing costs and possibly, property taxes.
For sellers, a clean and uncluttered home will maximize cases for a strong appraisal. Licensed home appraisers are supposedly unbiased, but decidedly human.