Buying and selling a house can be an exciting process: touring homes, negotiating for the best price, competing in a bidding war and selecting furniture and decor. What's not usually included in that list, though, is the appraisal process.
It's perhaps not the flashiest part of the process, but it's a critical one. For sellers, getting an accurate appraisal can influence how their home is priced to sell by a real estate agent. For buyers, especially those financing their home purchase, it's a part of the loan approval process.
The industry is at somewhat of a crossroads now, though, as it prepares to embrace a new system and it contends with changing market conditions.
On the consumer side, local housing market conditions — think home price growth, inventory and mortgage rates — are changing how homes are valued. Home price growth is slowing, a trend expected to continue into next year and potentially lower some valuations.
And on the professional side, appraisers are preparing to adopt a new system that streamlines the reporting process. While that's not a change that homebuyers and sellers will necessarily feel, it's still top of mind in the industry.
Nathan Pippin, a nearly 25-year industry vet with his own firm in Winston-Salem, North Carolina, says the biggest way consumers can contend with the shifts is by focusing on what the market actually wants.
"The theology and the methodology of appraising real estate do not change. The way that we report changes," he told Homes.com in an interview. "The things that the market is asking for are the things that you want to focus on to maximize your resale."
This interview has been edited for length and clarity.
You go to a house, what are the kinds of things that you're looking for?
We're trying to capture the things that we would consider the key market factors. In a lot of areas, this is size — your living area. We’ll measure the house to get an approximation of the square footage. Other things that we're looking for are quality, condition, maintenance, things like that.
One of the other things that we can detect and pass along are things that might constitute a health safety concern. I know to stay in my lanes, but when I see a flaw, I report it, and it's up to the client what they do with it that. If I see loose shingles or rotten wood or just things that are of concern, I don't know how to remedy that, and it's not my job to remedy it, but it is my job to call it out and let somebody else decide what happens with it next.
What is the final product of your appraisal report?
The value opinion or the value conclusion is one component of an appraisal report. There are some other outputs from an appraisal report.
One of them is market conditions, and so the appraisal should have some kind of summation about what's going on in the local market: what's driving the market, what's depressing the market, is the market trending upward or is it trending downward?
Another component of an appraisal is called highest end use. Just because your house is residential doesn't mean it's the appropriate end use for your marketplace.
How can homeowners and sellers best prepare for an appraisal?
There’s no perfect answer to this question.
The things that I tell people to fine-tune are the things that the market is asking for. That's another question you can't perfectly answer. But for real estate agents, when you answer the phone on Saturday, what are those buyers asking you for? Are they asking you for three-bedroom houses? Are they asking you for two-bedroom houses? Are they asking you for houses with metal roofs or shingle roofs?
What are the biggest mistakes homeowners make when trying to maximize their home’s value?
I’ll look in the house and they'll want full credit for their new kitchen, full credit for their new bathroom, but what do I do about this roof that's near depreciation? Or the AC that is so old, it glows, and I can see it from outer space.
It’s futile to upgrade the entire inside but ignore the mechanics.