What Do Appraisers Look at for a Home Equity Loan? A Detailed Guide

Getting a home equity loan usually requires an appraisal of your property. But what exactly do appraisers look for when determining your home’s value for a home equity loan?

As a homeowner looking to leverage your equity, it’s important to understand the home appraisal process and what appraisers focus on. This will help set realistic expectations and ensure you receive an accurate valuation.

In this comprehensive guide I’ll break down everything appraisers examine when appraising your home for a home equity loan.

Why Appraisals Are Required for Home Equity Loans

Before we dive into what appraisers inspect, it’s helpful to understand why lenders require appraisals in the first place.

For any loan where your home serves as collateral, lenders need assurance they can recoup the loan amount if you default. An appraisal provides third-party confirmation your home is worth enough to secure the loan.

Accurate valuations also prevent homeowners from borrowing more than their equity This protects you from owing more than your home is worth

Essentially, appraisals give lenders confidence in two key factors:

• Your home’s market value – What your property would sell for under current market conditions.

• Your home’s condition – Whether your home is structurally sound and well-maintained.

With these basics covered, let’s explore what exactly appraisers look for when evaluating your home.

Exterior Inspection

An appraiser’s inspection starts with the exterior. They’ll look at:

• Architectural style – Appraisers note unique architectural details that may impact value, like dormers, turrets, and bay windows.

• Age and upgrades – While age decreases value, upgrades like new siding, windows, and roofing can offset depreciation.

• Condition – Appraisers check for deferred maintenance, weathering, damage, and anything impacting livability.

• Landscaping – Well-maintained yards and gardens can slightly boost value. Overgrown landscaping may suggest issues.

• Outbuildings – Items like sheds, detached garages, and in-ground pools add value.

• Site – Lot size, topography, drainage, and other site attributes influence value.

Curb appeal matters, so tending to overdue exterior maintenance before an appraisal is wise. But also remember appraised value hinges on the whole package – not just aesthetics.

Interior Inspection

After inspecting the exterior, the appraiser will evaluate the interior. Here’s what they look at room-by-room:

• Entryways – Condition of front door, entry layout, closet space, and first impressions.

• Living spaces – Room sizes, configuration, fireplaces, built-ins, and flow.

• Kitchen – Cabinetry, appliances, counters, eat-in availability, and condition.

• Bedrooms – Dimensions, closet space, privacy, and any en-suite bathrooms.

• Bathrooms – Fixtures, ventilation, storage, and any updating.

• Basement – Finished areas, utilities, water intrusion signs, and storage.

• Attic – Insulation, ventilation, and any signs of leaks.

• Garage/carport – Size, number of bays, finished, and driveway.

Overall, appraisers look at how space is allocated, conditions, and any updates. Clutter can make rooms appear smaller, so decluttering before an appraisal is advised.

Home Features & Construction Quality

In addition to the home’s layout and condition, appraisers analyze:

• Home features – Fireplaces, wet bars, saunas, wine cellars, media rooms, security systems, etc. Features that enhance livability and marketability add value.

• Materials/finishes – Quality materials like hardwood floors generally increase value over lower-grade finishes like carpeting.

• Craftsmanship – Higher-quality construction warrants higher values than cheaply built homes.

• Mechanicals – Appraisers ensure electrical, plumbing, HVAC and other systems are updated, code-compliant and operable. Outdated or non-working systems can decrease value.

• Energy efficiency – Upgrades like new windows, additional insulation, and Energy Star appliances may boost value.

Comparable Home Sales

Appraisers don’t solely rely on inspecting your home. They also research recent sales of comparable properties – or “comps.”

Comps are homes similar to yours in:

• Location
• Size
• Age
• Condition
• Features

Appraisers analyze 3-6 comps to value your home in relation to others. Nearby comps sold very recently hold the most weight.

The Local Real Estate Market

Appraised values aren’t stagnant – they fluctuate based on market conditions. Appraisers factor in:

• Sale prices – Rising or falling sale prices in your area impact your valuation.

• Inventory – High inventory hurts values, while low inventory boosts them.

• Days on market – Faster-selling homes often fetch higher prices.

• Interest rates – Low rates prop up prices as buyers can afford pricier homes.

• Economic trends – An uptick or downturn in local employment rates may respectively increase or decrease value.

The Appraisal Report

After thoroughly inspecting your home inside and out, researching your local market, and analyzing comps, the appraiser develops their opinion of value via a detailed appraisal report.

This report summarizes their valuation methodology and typically includes:

• Your home’s characteristics
• Photos of your home’s exterior and interior
• A neighborhood overview
• Comps analysis
• Market trends supporting the appraiser’s opinion of value
• Any issues impacting livability or value

As the homeowner, you should review the appraisal report and understand the rationale behind your home’s valuation.

Preparing for a Favorable Appraisal

While appraisers aim for objective valuations, you can take proactive steps to maximize your appraisal:

• Declutter – Clear clutter to showcase your space.

• Clean – A deep clean highlights care and upgrades.

• Repair – Fix anything broken, damaged, or in disrepair.

• Curb appeal – Tend to landscaping, exterior paint, etc.

• Highlight upgrades – Create a list of improvements for the appraiser.

• Gather comps – Research recent sales of similar homes.

With a sound understanding of how appraisers evaluate your home, you can take steps to showcase your property’s full potential and maximize your chances of getting an appraisal that allows you to reach your home equity goals.