Are you a homeowner who is ready to refinance? It could save you thousands of dollars. But before your lender approves your new mortgage, your home will likely have to go through a home appraisal. This process is crucial because your lender must make sure your home's value is high enough to justify the mortgage loan.
"The appraisal is the lender's tool to decide how much money you get from the bank," says Jason Goldberg, chief information officer at Real Valuation Services in Deerfield, Ill. "They will use the appraisal to determine how much collateral they have for the loan. If the value is too low, a refinance may not be possible," he says.
The better the appraisal, the better the odds for a successful refinance. Here are five ways you can prepare for a refinance appraisal to get the best value for your home.
No. 1: Share recent sales information
Tell the appraiser about any recent home sales in your neighborhood, because it will give them a better idea of what homebuyers are willing to pay in your area, Goldberg says.
"The first thing I ask when making an appointment is for the homeowner to tell me about any comparables they think to be pertinent to the valuation of their property," says Donald Boucher, an appraiser and member of the Appraisal Institute in Washington, DC. "Hopefully the appraiser will know the neighborhood, but there are always things going on that may be new and useful information."
"Appraisers complying with the Uniform Standards of Professional Appraisal Practice are required to have 'geographic competency' in appraisal assignments, which means they're required to be aware of factors affecting the marketplace, such as employment bases and convenience to shopping," says John Brenan, director of research and technical issues for the Appraisal Institute, in Chicago.
If you can provide them with information on recent sales, it will help them come up with a more accurate picture of the home's value, he says.
No. 2: Increase curb appeal
When the appraiser comes for the appointment, make sure the grass is cut and the yard looks great, just as if you were trying to attract a buyer.
"A home that is clean and neat conveys a homeowner's attention to detail, and it might also make it easier for appraisers to determine the physical condition of the home," says Brenan.
Appraisers are similar to buyers because they consider the total condition of the property, so everything from landscaping to the condition of the home's floors is considered in that overall evaluation, he says.
No. 3: Inform appraiser about upgrades
Don't assume that an appraiser will see every improvement you've made to a home, says Brenan. Make sure you share with the appraiser any upgrades you've done. If the upgrade is recent -- within five years or so -- it could definitely help the home's value, he says
"Appraisers attempt to replicate the process that buyers go through in considering the potential purchase of a home, and that involves considering things like the quality of construction, condition of the home and any special features, such as upgrades," says Brenan.
No. 4: Clear the clutter
Make sure the home is tidy before the appraiser visits, so it doesn't make a negative impression. Appraisers may not drop the value of a home just because your desk appears messy, but a cluttered house could affect their overall impression of the property, and appraisers have to make a value judgment based on the upkeep of the home, says Goldberg.
"All those things will fall under the condition rating of your property," he says.
No. 5: Ensure everything is in working order
Walk though your home and make sure items are in good repair, Brenan says. Something as minor as a leaky sink handle could halt the refinance.
"A non-functioning faucet might require additional investigation, such as the overall adequacy of the home's plumbing," Brenan says. Appraisers will generally pay special attention to anything that involves roofing, plumbing, electrical and HVAC systems. If there's a problem in any of these areas, the lender could decide to halt the refinance, he says.
If you're ready to refinance, don't let a low appraisal derail the deal. Make sure you and your home are prepared to get the best value possible for the property.
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Margarette Burnette is an Atlanta-based freelance writer who specializes in personal finance and real estate topics. In her twelve years of corporate and journalistic experience, she's written for dozens of publications, including Good Housekeeping, American Express, Essence, Black Enterprise and many others.