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Home Appraisals: What You Need to Know




By Casey Bond|Reviewed by Erika Giovanetti|Dec. 5, 2023, at 9:54 a.m.


A home appraisal may not be top of mind when you're looking to buy, sell or refinance a home. But maybe it should be: An appraisal determines for the seller, the buyer and the lender how much a home is worth. The purpose is to protect the buyer and the mortgage lender from paying too much.


A home appraisal isn't the most glamorous part of buying or selling a home, but it's a key step. Keep reading to learn more about the home appraisal process.


What Is a Home Appraisal?



When you have your home appraised, a professional visits the property and inspects both inside and out. However, though both processes involve someone looking around your property, an appraisal has a different objective from a home inspection.


During a home inspection, an inspector examines things like your crawlspace, attic, cabinets, water tank and roof, says Doris Phillips, owner and president of title insurance company RealSource and COO of Lake Homes Realty. "Inspectors also look at everything that is moving and mechanical – they look for safety issues to make sure the house is in sound shape." If anything is found to be damaged or in need of upgrades for safety reasons, the inspector will give you a list of what needs to be addressed.


The goal of an appraisal, on the other hand, is to come up with an estimated market value for a particular property, based on its characteristics and market conditions, according to Matt Harmon, a certified property appraiser and real estate photographer based in North Carolina. "Appraisers seek to determine the fair market value that a typically motivated buyer would pay for a home."


After a visual inspection, the appraiser creates a report that explains how the value of the home was determined and what that estimated market value is. Though the value is ultimately the opinion of the appraiser, it is meant to be an unbiased, expert assessment.


Appraisals can be coordinated by either the buyer or seller. If you are planning to sell your home, getting an appraisal can help choose an appropriate listing price that will attract qualified buyers.


However, appraisals most typically take place during the mortgage approval process. The lender will order an appraisal to ensure that the home's value is in line with what you're planning to pay for it. Since the property serves as the loan collateral, the lender wants to be sure you aren't overborrowing, which could result in a loss if you aren't able to make your payments.


Even though it's the lender that requires an appraisal, the borrower is usually the one who pays for it. Generally, home appraisals cost from $200 to $600. The national average cost is $355, according to HomeAdvisor. Factors that affect the cost include the size of the home, its condition, the location, how detailed the report needs to be and more.


Regardless of whether you order a home appraisal as a buyer or seller, Harmon says it's important to have it scheduled as close to the sale date as possible. Market conditions can change dramatically over just a few months.


What Do Appraisers Look for During a Home Appraisal?



Home appraisers are responsible for estimating a property's market value, but how do they go about it, exactly?


Most appraisers use Fannie Mae's Uniform Residential Appraisal Report to evaluate a property's condition, size and layout, as well as any desirable qualities or drawbacks. That can include square footage, number of bedrooms and bathrooms, overall condition, and health and safety issues.


"We also observe things about the surrounding area, like the land the home is on, the type of homes in the immediate surrounding area and any negative features like loud roads, power lines, airport noise, etc.," Harmon says.


Once observations are done, the appraiser moves into the analysis portion of the process. "We take all of these factors into consideration and compare the subject property to other homes that have sold recently in the immediate area," Harmon says.


In fact, similar home sales in the area is one of the most important factors in a home's appraisal. Phillips notes that appraisers look for sales that occurred within six to 18 months and within a mile of the subject property, for homes that have similar features such as age, size and amenities.


These are referred to as "comps." "[Appraisers] typically want at least three comparable properties to come up with a good median price value of the home," she says.


For example, if homes sold within the last year ranged in price from $250,000 to $280,000, the appraiser would start with this range in mind and then adjust up or down. If the subject property has a bigger yard or a remodeled kitchen, for instance, the appraiser may go with the higher end of that range.


Ultimately, the goal is to determine what sale price a buyer and seller would agree on at that given time. This process usually takes about a week, though timing depends on the time of year and complexity of the report.


What Happens If the Appraisal Comes in Lower Than the Home's Price?



There are some cases in which an appraiser determines the home's value is lower than the agreed-upon sales price in your purchase contract. This can happen if you're buying a home in a competitive market where you've had to outbid several other buyers with an escalation clause that drove the purchase price higher than the home's initial list price.


"If the property is not worth what you are paying for it, then [the lender] will not loan you as much as you are going to need," Phillips says. In some cases, your mortgage application may be denied. Or depending on the language in your purchase contract, you may have to pay the difference between the sales price and appraisal value in cash, known as the "appraisal gap."


Here's how it works: Let's say you had an offer accepted to buy a home at $350,000, but the appraisal comes in lower at $330,000. If you included an appraisal gap guarantee clause as part of your offer, then you're responsible for paying the additional $20,000 in order to close the deal. If your offer didn't include that contingency, then you have a few options:

  • Negotiate with the seller to reduce the purchase price to the appraised amount. If there were multiple offers, the seller may just move to the next interested buyer, but it doesn't hurt to ask.

  • Order a separate appraisal – although there's no guarantee that the lender will accept the new appraisal.

  • Withdraw your purchase offer. Depending on the terms of the signed purchase contract, you might lose your earnest money deposit.

Your next move after a lower-than-expected appraisal will really depend on the offer you submitted with your real estate agent, so look to your agent for guidance on your options.


How Does a Real Estate Agent Affect a Home Appraisal?



Home appraisers are independent professionals who do their best to come up with an objective property value based on data. That means other interested parties, such as real estate agents, should not have influence over the result.


"There is some separation between agents and appraisers," Phillips says. However, a real estate agent can assist in the appraisal process by providing detailed knowledge of the property. If you're selling your home, your agent will meet with the appraiser to go over recent home improvements and other pertinent details. The agent can also help point the appraiser toward other comps in the surrounding area.


How Can You Improve Your Home Appraisal?



It's important to get an accurate home appraisal. But it's still best for sellers or owners who want to refinance their mortgage to get as high of an appraisal as possible.


That's not totally in your control, however. "The biggest influence on the value of a home is recent sales data in the immediate market area," Harmon says. "If homes are increasing in sales price, then the subject property will continue to increase in value with no changes to it." Alternately, if recent local sales prices are down, then the value of the subject property will likely go down, too.


That said, there are a few ways you can ensure your property is appraised higher:

  • Curb appeal counts. Mow the lawn, pull the weeds and trim the hedges.

  • Make sure the property is in tiptop shape. The appraiser should be able to see the home's potential. Your decor may not be a factor, but upkeep can influence your home's appraised value. "The most significant way a person can impact the market value of a home is by making improvements to the condition and quality of the home," Harmon says. Fresh paint and carpet, or updated kitchen and bathrooms tend to provide the greatest return on investment.

  • Prepare a list of recent home improvements. If you have made home improvements or added special features to your home, make a list of these upgrades and leave it for your appraiser. For example, you'll want to note if you put on a new roof or siding, or upgraded your furnace, and when. "At times, these additional facts about the home can help the appraisal support a higher value," Harmon says.

  • Focus on the right upgrades. "Most people think pools, pizza ovens and large yards will make the difference," Phillips says. "It really is updated kitchens and bathrooms." At the same time, don't get too excited if you've spent a lot on repairs and renovations. Your $30,000 kitchen remodel may help the appraisal, but it won't automatically mean that your house is worth an extra $30,000.


For more questions about appraisals or the housing market, feel free to reach out at any time!



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