How You Can Influence Your Appraisal When You Refinance

When you come to refinance your mortgage, you're almost bound to want the appraiser to assign your home the highest value possible. That obviously applies if you're undertaking a cash-out refinancing: all other things being equal, the higher the property's value, the more money you can take out of the transaction.

But it's also important if your only motivation is to get a lower interest rate, and you won't be walking away with any cash. That's because your loan-to-value ratio (LTV, your loan amount divided by your home's value) has an effect on the deal you get: lower LTVs generally mean lower mortgage rates.

How Appraisers Work

An appraiser will generally put a valuation on your home on the basis of comparisons. She'll look at recent sale (not asking) prices for similar homes in your neighborhood or area. In her ideal world, the identical home on an identical yard in identical condition with identical features would have sold next door to you on the morning of her visit. She'd have to check that sale price wasn't an outlyer (your mom hadn't overpaid by $30,000 because she'd give anything to live next door to you), but would normally have a perfectly comparable sale. Her job would be easy.

Of course, that virtually never happens, so the appraiser inspects your home, gathers information on comparables and uses a form to calculate the differences between those and yours. Property market analysts CoreLogic recently looked at a sample of 1.3 million appraisal forms from 2012-15 to see which characteristics and features appeared on them most often, and which had the greatest influence on the appraised value.

Appraisal Report Adjustments

Here, in order, are the six factors that appear most commonly on appraisal reports:

  1. Living area – The home's square footage
  2. Rooms – The number of bedrooms, bathrooms and other rooms
  3. Car storage – Garaging, carports, parking spaces
  4. Porch and deck
  5. Overall condition
  6. Site area – How big your yard, if any, is

And here, also in order, are the six factors that make the most difference to the dollar value of the appraisal:

  1. Quality rating
  2. Overall condition
  3. Location
  4. View
  5. Living area
  6. Car storage

What You Should Do

You'll have spotted that there's only a partial overlap between the things appraisers frequently make an adjustment for and the things they make a big adjustment for. And that most of the changes that could really make a significant difference to your refinance are either wrong (do not blow up the house opposite yours to improve your view) or likely uneconomical (the cost of extending your home or adding garaging could mean you'd need another refinance to finance this one).

In fact, the only thing most people can sensibly do to improve an appraiser's valuation is improve the overall condition of the property. Adjustments for overall condition are made on more than half of all appraisal forms, and the average dollar amount involved is close to $13,000. So it's a worthwhile project, particularly if you can keep down costs by using your own labor.

Probably your first priority should be any structural defects. Your home should at the very least be watertight, and leaky roofs and badly damaged windows and sidings need repairing urgently. Expect a seriously lower appraisal value if you ignore those sorts of defects.

What You Can Do

However, most homes are reasonably well maintained, and most homeowners face less daunting tasks. It's not a bad idea to think of appraisers like real estate agents and prospective home buyers. After all, appraisers determine values based on what buyers have paid for comparable homes, so they should be influenced by similar factors. When you refinance a mortgage, present your home as if you were selling it. In order of importance, make sure on the day the appraiser's due that it:

  1. Doesn't have any visible defects
  2. Doesn't smell bad
  3. Is scrupulously clean
  4. Is tidy and uncluttered
  5. Has a well-tended yard and driveway
  6. Has curb appeal
  7. Appears freshly decorated in inoffensive colors

If you already have the money and are planning to do other work anyway, by all means go ahead early in order to impress the appraiser. New carpets, drapes and other fixtures and fittings can affect professionals just as they can buyers.

What You Shouldn't Do

Your goal for a refinance appraisal should be to make cost-effective improvements. So don't embark on expensive remodeling projects unless you're planning to do them anyway.

Remodeling magazine's 2015 Cost vs. Value Report reveals that, on average and nationwide, only one out of 36 popular home improvement projects, excluding decoration and essential maintenance, provides instant payback on your investment: Spend $1,230 on a steel replacement entry door, and you could immediately add $1,252 to the resale vale of your home. Everything else – from an attic bedroom to a window replacement – is likely to see you make a financial loss, at least in the short term.

Of course, that doesn't mean you should duck keeping your home up to date. When property prices are rising, remodeling projects can soon give you a return on your investment, and you may well regret allowing your residence to become dated when you come to sell it. As importantly, we're talking about the place you live, which should mean more to you than solely dollars and cents.

But an appraisal for a refinance is solely about dollars and cents. It could get you extra cash immediately or give you access to lower mortgage rates. So, just for that day when the appraiser makes an inspection, forget sentiment.

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