Understanding a Real Estate Appraisal

An appraisal is what your house is worth in its real estate market. Notice I said your house, not your home. We have worked hard over the years to gradually make changes to our house to make it what we want - our home. My children have grown up here and there are wall-to-wall memories. That is what makes it my home. However, it is the house that gets appraised, not your home. Try not to take an appraisal personally.

Appraisers have to compare your house with other houses in your area which have sold, preferably within the past six months which are similar in square footage, number of bedrooms, number of bathrooms, finished and unfinished square footage in the basement, garage space, fireplaces, insulated windows and age.

Let's talk about square footage for a minute because, I believe, it is the biggest misunderstood part of an appraisal. You have base square footage and basement square footage. If you live in a house on a crawl space or slab, you will not have this confusion over square footage.

If you have a finished area in your basement (heated and cooled), this area is NOT given the same value per square foot as your first and second floors. On the appraisal you will see an area for "base" square footage. This is first floor or first and second floor square footage only. It is heated and cooled space and does include your attached garage. This value is calculated on a line by itself. Under that you will see basement area. Most appraisers split this so you can understand it better. The unfinished area is an area not heated and cooled and has no walls, floor finishes etc. This is on one line. If you have a garage in your basement, it is included in this unfinished area. On the second line, under basement area, you will see finished basement. These usually are displayed as "U" and the number of unfinished square feet and "F" followed by the number of finished square feet. The finished basement area will be followed by numbers such as 3-1-1. The first number is the number of rooms down there. The second number is the number of bedrooms down there and the last number is the number of bathrooms down there. These areas are all calculated separately. You cannot add the first floor, second floor and finished basement area square footage together. This is not my rule but a standard appraising rule.

The next item sometimes misunderstood is age. We cannot compare a resale with a new house. If your house is just a year old and the first in the subdivision to sell, we might use one or two new sales but would have to include a resale nearby. But if your house is 5 years old, 10 years old, etc., we cannot use the new houses at the end of your street as comparisons. Underwriters review appraisals and they would not accept that appraisal. Also, if there are sales in your neighborhood, we cannot ignore them and use houses that sold somewhere else.

Although finishes and renovations can give you more credit, don't expect huge dollar amounts for these items. This is a whole new subject.

Just remember, the appraiser is placing a value on your "house" based on what is going on in your area and not your "home" and what it is worth to you.