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Home Appraisal: What Is It, And What Does It Cost?

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Whether you’re looking to buy, sell or refinance, an appraisal is likely going to be an important part of the process. After all, you’ve first got to know how much a house is worth before you can make any meaningful financial moves on it.

The appraisal process can be a nerve-wracking one, especially if you aren’t sure what all goes into it. Let’s take a look at what appraisals are, how they work and how much you can expect one to cost.

What Is A Home Appraisal

An appraisal determines the fair market value for a home. In other words, it assures your lender that the price you’ve agreed to pay for a home is fair. Appraisals are also often used to estimate property taxes, which makes them a requirement in most counties. 

Your mortgage lender needs to know that they aren’t giving you more than the amount necessary to buy a property. For example, let’s say the mortgage lender issues you a loan for $500,000 and the property you buy is only worth $200,000. The lender will have a very tough time recouping the money from the sale in the event that you default on the loan and the home goes into foreclosure.

An appraisal differs from a home inspection. A home inspection is a much more in-depth process. In a home inspection, an inspector specifically looks for problems in the home and determines whether certain areas need repairs. An inspector may test outlets, run the home’s furnace to see if it can hold a stable temperature and look at the roof to see if it’s been properly installed.

A home appraiser will take visible defects into account, such as a roof that’s caved in or the fact that the home doesn’t have a working plumbing system, but appraisers do not search for specific problems. Instead, the appraiser looks for an overall value to assign to the property. 

The Home Appraisal Process

Appraisals are not performed by your mortgage company. Most state laws require that only an independent third party may perform an appraisal, though your mortgage lender may help schedule or arrange the appraisal.

During the actual inspection, an appraiser looks at a number of factors in the home to determine its value. Some of the things that appraisers consider when they determine a home’s value include:

  • The basic condition of the home: The appraiser won’t check to see if outlets are working or consider the paint color on the walls when they assign a value to the home, but they will assess the home’s basic condition. The appraiser counts the number of bedrooms and makes sure each one has a window and a closet. They also check for health and safety considerations, such as the presence of lead paint, and check to see if the HVAC system and cooling system are functional. They will also make sure that someone could reasonably live in the home. If they determine that someone cannot, expect the appraisal value to be significantly lower than surrounding homes that are in livable condition.
  • Upgrades: Your appraiser will look at any upgrades or improvements you made to the property. The upgrade needs to be a permanent fixture of the home if you want it to increase the value of the home. If you can take it with you when you move, your appraiser probably won’t consider it an upgrade. The appraiser also considers upgrades outside of the home’s living space, including upgrades to the garage, pool or basement.
  • Other homes in your area: Appraisers don’t just look at your property when they assign a value to your home. They also look at public records of other homes near yours. Because location is a major factor in determining the value of a property, appraisers will look at what similar homes have recently sold for and how property values trend.

After the appraiser finishes their research, they make a final estimation of the value of the property in a formal report. The appraiser then delivers the report to your mortgage lender.

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Average Home Appraisal Cost (And Who Pays)

As a general rule, most single-family home appraisals cost between $300 – $400, while multifamily units typically cost upward of $600.

Even though most lenders require an appraisal as a condition of a loan closing, the buyer pays for the appraisal unless they negotiate for the seller to pay instead. The amount that a buyer pays for an appraisal depends on a number of factors, including the size of the home, the home’s location, and the amount of property research that the appraiser ends up doing before he or she issues you a final value report.

Keep in mind that if the property is on a very large plot of land, the appraisal will cost more because the appraiser often surveys the boundary lines of the property to make sure that the listed square acreage is correct.

Buyers can also expect to pay more for an appraisal in a very rural area simply because there are fewer appraisers working in these areas. This might mean a longer wait for an appraisal as well. If you have any questions about how much your appraisal will cost, consult with your mortgage lender. 

Home Appraisal Tips For Buyers

An appraisal value that doesn’t match your purchase price could mean trouble. If the house appraises for less than you’ve agreed to pay, you may find yourself having to bring more money to the table or negotiating with the seller to make the deal work. In some cases, a too-low appraisal could force you to walk away from the home. If you’re buying a home, here are some things to keep in mind about your appraisal.

Be Thoughtful About Your Offer

A hot market can force buyers to make offers well above the asking price. In some cases, buyers may end up agreeing to pay much more than the home is actually worth. If you have extra money to bring to the table, this might not be a problem, but if you don’t have extra cash on hand, a low appraisal might mean you can’t get financed. To avoid this scenario, you need to know the market. Keep an eye on home sales that are comparable to what you’re looking for, and hire a great real estate agent who knows the area well.

Appeal The Appraisal

Do you think the appraiser made an error? You may be able to appeal the decision.

Review the appraisal report to make sure everything checks out. Did they note all the property details correctly? Are the comparable properties cited in the report too far away from the home you’re buying? These may be grounds to appeal the appraisal. To start the appeal process, contact your lender.

Don’t Stress

The appraisal results are out of your hands, so as the buyer, all you can really do is hope things work out the way they’re supposed to. The appraisal is in place to protect you and your lender from overpaying for a home – so a low appraisal could be a blessing in disguise.

Get approved to buy a home.

Rocket Mortgage® lets you get to house hunting sooner.

Home Appraisal Tips For Sellers

When you’re selling your home, it’s important that the home doesn’t appraise for significantly less than what the buyer agreed to pay. Unless you’ve got a cash offer, a low appraisal could be a deal-breaker. Here are some ways to help your home appraise for the right amount.

Provide An Offer List

If you received more than one offer for your home, let your appraiser know. Multiple offers can show the appraiser that your home was priced well. Provide the appraiser with a list showing each offer you received.

Attend The Appraisal

As the seller, you’re allowed to be present when the appraiser does their walk-through. Accompanying the appraiser gives you the chance to point out any upgrades, improvements or particularly charming design features. This is your chance to make sure the appraiser doesn’t overlook those fantastic new cabinets you just installed.

Tidy Up

You can’t change your home’s square footage or location, but you can make your home look bigger, brighter and more valuable with a few affordable home renovation tricks.

Maximize your space by putting away countertop appliances and clutter. Replace lightbulbs with brighter ones. Hang mirrors to maximize natural light and give the illusion of a bigger room. Pull furniture away from the wall. Do whatever you can to make your home look bigger and brighter.

Provide Comparable Properties

If you or your agent are aware of recent sales that could be considered in the report, provide them to your appraiser. Search public records for homes with a final sale price close to what you asked for your home. You can present this list to the appraiser when they arrive at the home.

Home Appraisal Tips For Refinancers

When you’re refinancing, you want to get the highest appraisal value possible. A low appraisal value could keep you from refinancing, but a high appraisal value means more equity for you – which could mean more cash out or better loan terms. Here are some ways to up your chances of a high appraisal value.

Get An Outside Opinion

Your home is full of memories, which may give you blind spots when it comes to defects in your home. Have a friend or family member examine each room in your home and point out areas that can be improved. Sometimes, a new set of eyes is just what you need.

Declutter

A thorough decluttering will help each room look more put-together. While your appraiser shouldn’t assess the value of your home based on how much clutter or mess there is, it’ll be easier for them to see your home favorably if everything’s put away nicely.

List Upgrades And Improvements

Upgrades and improvements can increase your property’s value, but the work you’ve done may not always be obvious. Did you get a new air conditioner? Replace the windows? Add new landscaping? Provide your appraiser with a list of upgrades you’ve made so they can consider these items in their report.

Summary

An appraisal determines the fair market value for a home. A professional appraisal is done by an appraiser, who assesses the interior and exterior of the property, researches similar homes in the area and gives a final report. Be sure to spruce up your home to make it look more appealing to an appraiser.

Before your mortgage lender gives you a loan, they look at the appraiser’s report to ensure that they have enough equity to recoup the cost of the loan if you default. Most single-family home appraisals cost $300 – $400, while multifamily units typically cost up to $600, though it could be more costly if you live in a rural area or have large acreage.

If an appraisal comes in low, buyers and sellers both have options. A buyer can renegotiate the sales price and a seller can lower the home price or request another appraisal.

Appraisals are beneficial for everyone involved in the home buying process: For buyers, a home appraisal ensures that there are no glaring, hidden issues in their dream home. For sellers, an appraisal helps them price their home competitively. For mortgage lenders, an appraisal provides the peace of mind that a loan isn’t too high of a risk.

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