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

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 typically will need to know how much a house is worth before you can make any meaningful financial moves on it.

Getting an appraisal can be nerve-wracking, especially if you aren’t sure of the factors that are involved. Let’s take a look at what appraisals are, how they work and how much you can expect one to cost.

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.

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.

Besides the traditional in-person appointment, your lender may schedule a different type of appraisal, depending on your situation. Over the last few years, technology has made it easier to assess a home’s value without an appraiser being physically present. Here are a few types of appraisals worth considering:

• Hybrid appraisal: A hybrid appraisal combines a virtual and in-person visit. The appraiser will use photographs from the listing or home inspection to view the property. They’ll also hire a local professional to gather additional information on the home, whether it be measurements of the rooms or details on specific features.
• Desktop appraisal: Like it sounds, a desktop appraisal is simply done from the appraiser’s computer. The appraiser will only use public records, floor plans of the house and comparable properties in the area (called real estate comps) to get the information they need. These appraisals have become more popular among lenders because the appraiser never has to leave their office to complete the report – leading to a shorter waiting period. Please note that Rocket Mortgage^® doesn’t offer desktop appraisals at this time.
• Drive-by appraisal: Some lenders may use what’s known as a drive-by appraisal for qualifying borrowers. This type of appraisal is especially common for FHA and VA lenders that started accepting exterior-only assessments during the COVID-19 pandemic.

Whether you’re buying, selling or refinancing your house, understanding the types of appraisals available to you can make it easier when you reach this step in the process.

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

Appraisers also have a specific set of factors they assess when creating the appraisal. Let’s take a look at the three most important home features that they evaluate.

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 so they can 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.

A home appraisal can cost anywhere in the $300 – $2,000 range. You’ll pay less for a single-family home appraisal than a multifamily home appraisal.

Even though most lenders require an appraisal as a condition of closing on a house, the buyer pays for the appraisal unless they negotiate for the seller to pay instead. The amount a buyer pays for an appraisal depends on various 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.

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

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

Several factors determine how long an appraisal takes. These include the type of appraisal your lender orders and the laws of the state where you live. The home appraisal process can take anywhere from several weeks to a few days from start to finish.

The inspection itself can last 15 minutes to several hours, although longer physical inspections have become less common.

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, your lender won’t let you borrow more than the appraised value of the home. If this is the case, you may find yourself needing more cash to close or negotiating with the seller to make the deal work. In some cases, a low appraisal could force you to walk away from the home.

If you’re buying a home, here are a few tips to help you prepare for and get through the appraisal process.

1. Avoid Offering Too Much Over The Asking Price

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 secure the financing you need.

To avoid this scenario, get familiar with the housing market in your area. Keep an eye on comparable sales and hire a great real estate agent who knows the area well.

2. Appeal The Appraisal If Needed

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 or are there more appropriate comparable properties in the area? These may be grounds to dispute the appraisal. To start the appeal process, contact your lender.

Keep in mind that this is often a longshot process and appraisers can correct errors before a new appraisal is ordered.

3. Don’t Let It Stress You Out

The appraisal results are out of your hands, so as the buyer, all you can really do is hope the outcome is to your liking. 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.

Remember, a home appraisal is typically required if you’re financing a home purchase. Keep these tips in mind as you prepare to buy your new home.

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

1. 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 a list with each offer you received.

2. 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 new cabinets or countertops you just installed. Even small upgrades can help your home appraise for a higher amount.

3. Tidy Up

You can’t change your home’s square footage or location, but you can – with a few affordable home renovation tricks – make your home look bigger, brighter and more valuable. Here are a few actions you can take to tidy up your house before an appraisal.

• 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.
• Pick up any debris in the front yard or backyard and give your garden some attention to boost your home’s curb appeal.

Do whatever you can to make your home look tidier and more spacious. This can make your home appear better maintained, and it may result in a higher appraisal value.

4. 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 property.

When you’re refinancing, you’ll want to get the highest appraisal value possible. A low appraisal value could keep you from refinancing, but a high appraisal value means more home equity is available to you – which could result in more cash out or better loan terms.

Increase your chances of a high appraisal value by reviewing our refinance appraisal checklist and taking the steps described next.

1. Get An Outside Opinion

Your home is likely a place where you’ve made many memories, perhaps making it hard for you to notice any defects in the house. Have a friend or family member examine each room in your home and point out areas that can be improved. Sometimes, a fresh perspective on the property is just what the homeowner needs.

2. Declutter

A thorough decluttering will help each room look more put-together. While your appraiser shouldn’t assess your home’s value based on the amount of clutter or mess, they may see your home favorably if everything’s put away nicely. The absence of clutter also shows them you’re not trying to cover up any potential flaws or defects in the property.

3. 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.

Bear in mind that these must be improvements that impact the value of your home. For example, if you didn’t previously have an air conditioner, the addition of central air adds value. However, if you replace a broken air conditioner, that’s considered maintenance and doesn’t add to the home’s value.

Navigating the home appraisal process can be confusing and stressful, but it doesn’t have to be. To help you feel better prepared, here are answers to some of the most frequently asked questions about home appraisals.

Do I need to get a home appraisal?

If you’re refinancing your home or using a mortgage to finance the purchase of a new home, your lender will likely require you to get an appraisal before you can close on the loan. However, if you’re buying a house with cash, a home appraisal isn’t an absolute necessity.

Keep in mind, though, that it’s still a good idea to get the home appraised so you know you’re paying a fair price for the property.

What is a home appraisal based on?

Features that an appraiser considers when performing a home appraisal include:

• The home’s location, age, square footage and overall condition
• The number of rooms, including bedrooms and bathrooms
• The quality of the property’s landscaping, foundation, roofing, plumbing and lighting
• The condition of the home’s appliances
• Any recent home improvements that add value

How long does the appraisal process take?

It depends on the type of appraisal your lender orders. However, in most cases, it will take around a week – and maybe a little longer – for the appraiser to assess the property and prepare the report.

Who pays for the home appraisal?

Unless the home appraisal cost is negotiated with the seller, the buyer typically pays for the appraisal. Factors that can affect the appraisal fee include the home’s location, size, age, condition and any research the appraiser does on the property.

What can I do if I receive a low appraisal?

If you’re buying a new home and the appraisal comes in low, your mortgage lender won’t lend you more than the appraised amount. You can opt to pay cash to cover the difference between the appraised value and the loan amount, or you can negotiate for a lower sale price or decide not to move forward with the purchase.

If you’re refinancing your home, you may want to challenge the appraisal if you believe the appraiser missed valuable additions or made mistakes on the report.

A home appraisal benefits everyone involved in the home buying process. For buyers, an appraisal ensures they’re paying the current fair market value. For sellers, an appraisal helps them price their home competitively.

Ready to continue your homeownership journey and apply for a mortgage or refinance your current home loan? Start your application with Rocket Mortgage today.