What Is A Home Appraisal And How Much Does It Cost?

What Is A Home Appraisal?

A home appraisal is a process through which a real estate professional determines the fair market value of a property.

Home appraisals are typically required when you take out a mortgage, whether to purchase or refinance a house. The appraisal can assure you and your lender that the price you’ve agreed to pay for a home is fair.

Appraisal Contingency

If you need a mortgage to buy a home, your real estate agent will likely suggest that you include an appraisal contingency in the sales contract. The appraisal contingency lets you walk away from a home purchase if the appraisal comes in too low to justify the agreed-upon purchase price.

While highly recommended in many cases, appraisal contingencies aren’t required. You may want to skip the contingency if you’re buying a home with cash or you’re in a seller’s market.

However, it makes a lot of sense to include one if you’re buying your first home or you’re on a tight budget. The contingency protects you from paying too much for a house that’s worth less than it’s being sold for.

Home Appraisal Vs. Home Inspection

An appraisal differs from a home inspection, which 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 and maintained.

A home appraiser will take into account visible defects, such as a caved in roof or an improperly functioning plumbing system, but an appraiser doesn’t search for specific problems.

Instead, the appraiser mainly looks for an overall value to assign to the property without digging for deeper issues that can impact how much you’ll end up spending to repair the home. An appraiser might require a specific type of inspection if there are safety concerns.

What Do Home Appraisers Look For?

Your lender hires a licensed appraiser to act as a third party that’ll independently assess your home and determine its value. That way, both you and your lender know that the appraisal has been created without bias.

Appraisers also have a specific set of factors they assess when creating the appraisal, including the condition of home, any home improvements that have been completed and real estate comps.

Condition Of The Home

Unlike a home inspector, the appraiser isn’t looking for specific faults or issues. Instead, they’ll be assessing the general condition of the property. The appraiser will count the number of bedrooms, ensure the absence of any safety hazards and check the functionality of home systems.

Their primary focus is to determine whether a home is in a livable condition. If the house is deemed unsafe, its appraisal value could be much lower than expected.

Home Improvements

If you’ve completed any upgrades or renovations to your house, the appraiser will consider them – but only if they’re permanent fixtures. For an improvement to increase the value of your home, the upgrade will need to be left behind when you move. Otherwise, the appraiser won’t include it in their evaluation.

The appraiser will also check for any upgrades you’ve made outside of the main living areas. For example, maybe you’ve renovated your garage, finished your basement or landscaped around your pool.

Real Estate Comps

Your home isn’t the only one considered when the appraisal is created. A licensed appraiser will also include a brief analysis of real estate comps near your home. They’ll check to see how much these other houses sold for and the houses’ current property value to find an appropriate dollar amount for your home.

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