What Is A Home Appraisal, And How Much Does It Cost?
Hanna Kielar7-minute read
September 15, 2021
Whether you’re looking to buy a house, sell or refinance, a home appraisal is likely going to be an important part of the process. After all, you have 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?
A home appraisal is a process through which a real estate appraiser determines the fair market value of a home. It can assure you and your lender that the price you’ve agreed to pay for a home is fair. Appraisals are also often used to determine property taxes, which makes them a requirement in most counties.
If you need a mortgage to buy a home, your real estate agent will 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 necessary in most cases, they aren’t required. You may want to skip the contingency if you’re buying a home with cash or if you’re in a seller’s market. However, it makes a lot of sense if you’re buying your first home or if you’re on a tight budget.
Home Appraisal Vs. Home Inspection
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.
Other Types Of Appraisals
Depending on your lender and your circumstances, your lender may require one of the following types of appraisals. Lenders are finding that allowing the use of technology or non-invasive appraisals tends to reduce appraisal costs and speed up the appraisal process.
- Hybrid appraisal: Hybrid appraisals allow appraisers to use information from a third-party source to complete an appraisal without ever physically visiting a house. In some cases, appraisers might use photographs from the home inspection, or they might hire someone to gather site-specific information in accordance with the lender’s requirements.
- Desktop appraisal: As technology has been embraced by the real estate industry during the pandemic, desktop appraisals have also increased in popularity. A desktop appraisal is much like a hybrid appraisal, except there is no third party involved. The appraiser uses information available online – property records, floor plans and comparable listings, for example – to gather what they need to make an appraisal.
- Drive-by appraisal: Lenders may be satisfied with a drive-by appraisal for many prospective homeowners. The Federal Housing Administration (FHA) and Veteran’s Administration (VA) both allow exterior-only appraisals for most refinances, and during the COVID-19 pandemic, have allowed drive-by appraisals for some home purchases.
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What Do Home Appraisers Look For?
Appraisals are not performed by your mortgage company. Most state laws require that only an independent third party may perform a property 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 home’s 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 valuation of the property in a formal report. The appraiser then delivers the report to your mortgage lender.
How Much Does A Home Appraisal Cost (And Who Pays)?
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 they issue a final value report on the appraised value.
Keep in mind that if the property is on a very large plot of land, the appraisal cost will be 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 a higher appraisal fee 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.
How Long Does A Home Appraisal Take?
Depending on the type of appraisal ordered by your lender, and the laws of the state where you live, an appraisal can take from several weeks to a few days from start to finish. The inspection itself can last from 15 minutes to several hours, although, as noted above, those longer physical inspections have become less common due to the pandemic. It’s a bit too soon to say whether the technology embraced during the pandemic is here to stay, but it seems likely that tech will continue to speed up this leg of the home buying process.
Home Appraisal Tips For Buyers
Home appraisals can affect the selling price and mortgage amount for a home. An appraised 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 cash to close 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 comparable sales, 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.
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.
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 walkthrough. 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.
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 dim light bulbs 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.
A thorough decluttering will help each room look more put-together. While your appraiser shouldn’t assess your home’s value 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.
The Bottom Line
An appraisal determines the fair market value for a home. A professional appraisal is done by a licensed third-party 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 you aren’t paying more for the home than its current value. 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. While a client or seller can request a new report, that does not mean that a new report will be ordered or issued upon that request.
Appraisals are beneficial for everyone involved in the home buying process: For buyers, a home appraisal ensures they are paying the current fair market value. For sellers, an appraisal helps them price their home competitively. For mortgage lenders, an appraisal provides proof that a home is valued at the proper level to approve a mortgage.
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