A real estate appraisal is the process of developing an opinion of value for real property. Appraisals are performed by licensed real estate appraisers.

 

Appraisals differ from Broker Price Opinion (BPO) and Real Estate Valuation in that appraisals can only be performed by licensed real estate appraisers.

 

You can receive a [free real estate valuation estimate](https://www.offermarket.us/tools/free-real-estate-valuation), compliments of OfferMarket.

Real estate appraisal is the process of developing an opinion of value for real property. Appraisals are performed by licensed real estate appraisers.

Appraisal - Real Estate Glossary - OfferMarket

What is a real estate Appraisal?

by Daniela Gonzalez

 

<img load="lazy" src="https://porch.com/advice/wp-content/uploads/2021/11/iStock-1038186890.jpg" alt="Three miniature, toy suburban homes on top of a stacks of quarter coins">

Property value has many moving parts, especially for something that itself doesn’t, well, move. The factors involved in determining property and home value are sliding scales of perception, priority, and personality. What is important to some may be a deterrent to others, so coming to a consensus on the value of a property has numerous considerations.

 

## How Is Home Value Determined?

 

<img load="lazy" src="https://porch.com/advice/wp-content/uploads/2021/11/lesia-gant-olFlnjzapjk-unsplash.jpg" alt="Arial view of a suburban neighborhood">

 

#### Size

 

This one is pretty straightforward – larger homes are more expensive because building bigger homes is more expensive. Depending on where you live, there is a varying cost per square foot to build a home (this has huge variations across the country based on many factors like availability of building material, contractors, remoteness, terrain, etc.). 

 

#### Age

 

The age of your home can contribute both positively and negatively to your home value. We tend to place a high value on historical or character homes – classic homes from the early 1900s that have been well maintained and upgraded. Conversely, homes from the mid-1900s forward that have not been updated are not seen as having high value. If your house would not fall into the historical or character home category, [renovations and updating](https://www.reverealtors.com/blog/detail/1540/1/High-Value_Renovation_Projects_for_Your_Home) are necessary to maintain home value.

 

#### Location

 

Some location elements are primarily about personal priorities—some people prefer being closer to amenities, downtown cores, schools, nightlife, wilderness, hiking and biking areas, etc. 

 

Other locational elements are less subjective. For example, we can confidently say that most of us would prefer not to live next to a dump or landfill—or a meat processing facility, power generation plant, or fire station. A property nearby could have a beautiful home and exterior landscaping, but we would likely still value it less than the same home in a more picturesque location.

 


#### Features

 

The features of your home and property contribute hugely to its market value. What the term ‘features’ encompasses is vast and also highly personal. Here are some features that contribute to the value of your home and property:

 

- [Home gym](https://porch.com/advice/set-ideal-home-gym-hassle-free-daily-fitness) (including flooring, mirrors, etc.)
- Home theatre room
- Feature fireplace
- Indoor or outdoor water features
- Oversize windows
- Smart home features
- Finished/heated garage

 

#### Safety

 

Neighborhood safety is a significant factor in the value of your property. Not only is it undesirable to consider living in an area with a higher crime rate, but it will likely cost a potential buyer more in the long run too. Home insurance companies factor in the crime rate in your area and the likelihood that you’ll make a claim due to a burglary or property damage and will give you a higher rate if you live in a high crime area.

 


#### Neighborhood

 

You know the ones, the good neighborhoods where everyone wants to live. It might not be because the houses are beautiful and gigantic; maybe it just has a good vibe or many great locally-owned restaurants. Whatever the reason, some neighborhoods are more desirable than others, and just having your home located there can positively impact your property value. 

 

#### Tree Value

 

[Tree value](https://porch.com/advice/much-trees-really-worth) can reference both the trees on your property specifically, as well as the trees on your street in general. Having old and well-cared for trees provides a beautiful natural element to your property that people are drawn to, enough so that it has a noticeable effect on your property values. 

 

#### School District

 

If you have children going to a public school, this is probably something that you’re already keenly aware of. It’s also an excellent example of how priorities are on a sliding scale regarding property value. If you don’t have children, or they attend or will attend a private school, then you’re much less likely to be willing to pay more to be in a desirable school district.

 

## What can decrease my home’s value?

 

#### Crime Rate

 

Many potential buyers are savvy about this these days, and they will check on the crime rates in neighborhoods they’re interested in purchasing in. So not only are those baddies sneaking around and damaging property or stealing bad for you, they’re bad for the overall value of your home now and into the future. 

 

#### Neighborhood

 

Gentrification is a tricky thing when it comes to property value. It relies on an overall increase in property values throughout a neighborhood to bolster the value of individual properties. 

 

Suppose you renovate a home in a less-desirable area with the idea that the neighborhood itself is becoming more gentrified, and that doesn’t happen as quickly as you were hoping (or at all). In that case, you have a property that’s valued is negatively impacted by the general area, not by the characteristics of the home or property itself.

 

#### Location 

 

There’s a good reason for the old “location, location, location” adage that you’ve likely heard many times before—it’s still relevant! So many factors go into what a desirable location is or isn’t, and they can be tricky to navigate. Here are a few of the important ones to consider:

- Cemeteries – generally speaking, very close proximity to a cemetery will work against your home value. 
- Highways – noise from roads is a detractor; while easy access is suitable for property value, it depends on your location.
- Hiking trails – if you’re a hiker, this could be a suitable property feature; however, many people do not prefer to have a reason for multiple strangers to be close to their home year-round. 
- Construction – Construction brings noise, people, dust, and traffic. None of these are suitable for your property value.
- Property history – This can be anything from being in a floodplain to having a violent crime committed on your property at some point. Some states have mandatory disclosure laws about certain things, while others do not, so the impact on your property value will depend on the history and where you live. 

 

## Tips For Avoiding a Low-Value Home 

 

<img load="lazy" src="https://porch.com/advice/wp-content/uploads/2021/11/lesia-gant-olFlnjzapjk-unsplash.jpg" alt="tiny home keychain">

 

Be informed – Know what’s happening in your neighborhood and city. It might not be the most scintillating activity, but keeping an eye on your city or town council’s activity and any proposed infrastructure changes or construction permits can be a great way to help you stay ahead of the game. 

 

Economic factors – The state of your local and national economy are one of the biggest drivers in real estate pricing. You could have an adorable home with perfect curb appeal, but your property will be valued less if you try to sell in a down economy. 

 

Building regulations – This is a significant factor if you’ve made any additions to your home. Most municipalities require permits for building additions, and if they are not correctly acquired, it is likely to be detrimental to your property value on resale. 

 

Hire a realtor – A realtor can focus their trained eye on areas that you can maintain or improve the home value that you might not have thought of. We get used to our homes and don’t see them with the critical eye that a potential buyer might, so having a realtor in your corner can help you keep ahead. 

 

## How To Increase Your Home Value

 

<img load="lazy" src="https://porch.com/advice/wp-content/uploads/2021/11/immo-renovation-UqNEbyRQ660-unsplash.jpg" alt="kitchen in middle of remodel">

 

Remodel – It’s a big undertaking, but if you want to maintain your home value and stay competitive in the resale market, remodeling is the best way to keep your home current. That’s not to say that you have to gut your home down to the studs every ten years, but making comparatively small upgrades like creating a more open concept floor plan or putting in more oversized windows (even just repainting) will help retain property value. 

 

Add features – Maybe you finish the basement or take that spare bedroom and create a home gym; anything you can add to your home that a future buyer would find attractive will work in your favor. This is also a great way to engage a real estate agent—they know what people are looking for in a home and can give you great advice on what would be an attractive feature to add to your home. 

 

Good maintenance – Little things add up, and they can quickly amount to enough things that, together, decrease your home value— if you need to have a portion of your fence replaced, no problem. Same with new gutters, some new [landscaping](https://porch.com/advice/xeriscaping-landscape), or exterior paint. Taken individually, these things are not likely to decrease your property value much. But all together, they definitely will. Keeping those pesky little tasks in check is one of the best ways to make sure that you don’t have a mountain of upkeep to do when you go to sell!

 

Now that you have a clear picture of the potential pitfalls that could decrease your property value and how to avoid them, you’re all set to make sure that you get the most out of your property when you choose to sell.

Comprehensive guide on preserving the value of your home. Detailing how to avoid common pitfalls of home buying and subsequent home maintenance.

Don’t Let Your Property’s Value Decrease - OfferMarket

Don’t Let Your Property’s Value Decrease

*Opinion by Daniel Sperling-Horowitz, CEO of OfferMarket. OfferMarket is a private lending platform and investment property marketplace.*

 

We started OfferMarket because we believe that sellers and buyers should be able to connect and transact commission free. OfferMarket is a commission free real estate marketplace for off market deals.

 

Many listings on our marketplace are posted by wholesalers. These are typically assignment of contract listings. If you are note sure what real estate wholesaling is, or you want to brush up on the topic, we encourage you to take a moment to read [Whole Real Estate 101](https://www.offermarket.us/guides/wholesale-real-estate-101).

Is it ethical to wholesale real estate? We'll look at both sides of this divisive topic.

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Is Wholesaling Ethical? | OfferMarket Blog

Is Wholesaling Ethical?

Grow your real estate investing business with the most competitive DSCR loan product. OfferMarket provides DSCR rental loans, bridge loans, hard money, fix and flip, slow flip, and ground up construction loans.

Private Lending | OfferMarket

Private Lending

Ground Up Construction Loans

Ground Up Construction Guidelines

Ground Up Construction Process

Ground Up Construction Loans No Experience

Pros and Cons vs. Fix and Flip

Ground Up Construction Lenders

**Last updated:** May 2, 2024

 

Ground Up Construction ("GUC") is the process of building one or more homes from the ground up -- starting with a vacant lot of land. Ground Up Construction is receiving an increasing share of attention from the [real estate investing](https://www.offermarket.us/blog/how-to-invest-in-real-estate) community given the current housing shortage and lack of profitability of traditional home flipping. The goal of this article is to share insights to help you better understand this real estate development strategy and help you build wealth through your own ground up construction projects.

 

## Ground Up Construction Loans

 

A Ground Up Construction loan is financing for the land, soft costs, and construction of 1-4 unit residential properties. These loans are generally provided by private lenders who also specialize in [Fix and Flip loans](https://www.offermarket.us/blog/fix-and-flip-loans) and [DSCR loans](https://www.offermarket.us/dscr-loan).

 

## Ground Up Construction Guidelines

 

<div style="display: grid; grid-template-columns: repeat(1, minmax(0, 1fr)); overflow: auto; white-space: nowrap;">
<table>
<thead>
 <tr>
 <th></th>
 <th>GUC Guidelines</th>
 </tr>
</thead>
<tbody>
 <tr>
 <td>GUC experience</td>
 <td>2+</td>
 </tr>
 <tr>
 <td>Borrowing entity</td>
 <td>LLC or Corporation</td>
 </tr>
 <tr>
 <td>Max LTC: Land</td>
 <td>75%</td>
 </tr>
 <tr>
 <td>Max LTC: Total</td>
 <td>85%</td>
 </tr>
 <tr>
 <td>Max LTARV</td>
 <td>75%</td>
 </tr>
 <tr>
 <td>Interest rate</td>
 <td>11% to 12%</td>
 </tr>
 <tr>
 <td>Origination fee</td>
 <td>2 or 3 points</td>
 </tr>
 <tr>
 <td>Term</td>
 <td>12 or 18 months</td>
 </tr>
 <tr>
 <td>Structure</td>
 <td>Interest-only</td>
 </tr>
 <tr>
 <td>Guarantor</td>
 <td>Yes</td>
 </tr>
</tbody>
</table>
</div>

 

## Ground Up Construction Process

 

1. **Identify your target market**: Focus on a market that you know inside and out, where you have an “edge” and understand market dynamics and prime locations better than most anyone else. When it comes to ground up construction, you want to have a tremendous amount of conviction in your location selection and development strategy. Collecting and analyzing data will help keep this effort objective. Research development trends, speak with zoning officials, and understand what’s important to your target buyer or renter. To avoid financing concerns, your market [should not be too rural](https://www.offermarket.us/blog/rural-designation-search-tools), as ground up construction in remote areas can present additional challenges.
2. **Acquire land:** you can either purchase an individual lot in a developed area ("infill"), or you can purchase a larger parcel that can be sub-divided. The easiest way to start is with infill, particularly in a market where you have access to existing water and sewer. Ground Up Construction loan programs from private lenders have a strong preference for infill projects.
3. **Obtain plans:** work with an architect or professional engineer to finalize site plans and blueprints and ensure that your plans meet zoning requirements and building code. Carefully and conservatively estimate your budget across labor, materials, soft costs (plans, permits), and carrying costs (financing) in a comprehensive [scope of work](https://www.offermarket.us/blog/scope-of-work).
4. **Obtain permits:** This can generally be done once you own the land, and your architect, general contractor, or professional engineer will be responsible for this step. In ground up construction, ensuring that all the necessary permits are in place is critical before moving forward.
5. **Implement financing:** Your GUC lender will order an appraisal. The appraiser will review your land parcel, scope of work, and plans to determine your project’s ARV (After Repair Value). Your lender will also review the track record (specifically in ground up construction or heavy rehab experience) and creditworthiness of the member(s) in the borrowing entity that will be serving as personal guarantor(s).
6. **Build:** Execute your scope of work carefully, managing the ground up construction process to avoid expensive mistakes and cost overruns. As you make progress, submit draw requests for reimbursement based on the percentage of the project completed and any materials that have been delivered on-site but not yet installed.
7. **Exit:** either via sale or rent and refinance into DSCR loan ("[Build-to-Rent](https://www.offermarket.us/build-to-rent-loan)").

 

The Ground Up Construction process is not easy but it is both rewarding and undeniably valued by your local community.

 

## Ground Up Construction Loans No Experience

 

Ground Up Construction loans are track record loans. GUC involves the highest degree of risk for borrowers and lenders, so you should expect your GUC lender to require a minimum of 2 verifiable ground up construction experiences among the members of the borrowing entity. If 2 verifiable GUC experience is not feasible, an exception can be made in the following scenarios:

 

- **Extensive, verifiable, heavy rehab experience:** Ideally, you have 10+ projects where the rehab scope was a full gut ("to the studs") and the budget was similar to the GUC budget. This experience will show that you're capable of managing a ground up construction project with a similar level of complexity and cost.
- **Experienced GC with verifiable GUC and heavy rehab experience:** Ideally, your general contractor has verifiable experience where their name or borrowing entity was on title. If their experience was solely client work, we will want to see evidence that they were the primary contractor for 5+ GUC or extensive rehab projects. Their background in ground up construction will ensure they understand the unique challenges of such projects.
- **Partner with an experienced GUC developer:** If you don’t have the necessary experience, you will need to partner with an experienced GUC developer who will be a member of the borrowing entity (preferably 20%+ ownership) and a personal guarantor. This partnership is essential for ensuring your ground up construction project has the expertise needed for successful completion.

 

## Pros and Cons vs. Fix and Flip

 

![Ground Up Construction Pros and Cons](https://cms.offermarket.us/uploads/Ground_Up_Construction_Pros_and_Cons_3df1fba0c3.png)

 

## Ground Up Construction Lenders

 

The best ground up construction lenders are able to provide you with the following:

 

- **Clear guidelines and expectations:** you invest a lot of time and money in each ground up construction transaction before you even close your loan and start your build -- there should be no surprises. Guidelines should be consistent, month-in, month-out so each subsequent deal is familiar and even easier than the one before.
- **Competitive terms:** Ground up construction (GUC) projects come with a high degree of difficulty and high execution risk compared to other real estate investing strategies. Your terms should ensure you have a margin of safety to generate strong risk-adjusted returns, especially given the complexities of ground up construction.
- **Reliable capital:** Your GUC lender should be ready, willing, and able to fund every qualified deal, even when the broader market and economy are uncertain. As long as your numbers work, your experience is solid, and your liquidity is strong, you should be confident that your ground up construction deal will be funded without delay or surprises.

Ground Up Construction is the building of a house, starting with a vacant lot of land. GUC is a strategy for building wealth through real estate.

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