Blog > The Ultimate Guide to Home Appraisal: What You Need to Know
A home appraisal is an essential part of the home buying and selling process. It helps determine the fair market value of a property and ensures that both buyers and sellers are getting a fair deal. In this comprehensive guide, we will cover everything you need to know about home appraisals, including the process, costs, and tips for preparing your home for an appraisal. Whether you’re a buyer or a seller, this guide will provide you with valuable insights to navigate the home appraisal process successfully.
1. What is a Home Appraisal?
A home appraisal is a professional, objective assessment of a property’s value conducted by a licensed appraiser. It evaluates various factors, such as the property’s size, features, condition, and location, to determine its worth. Home appraisals are required when applying for a mortgage or refinancing, as lenders need to ensure that the buyer isn’t overpaying for the property and that they are not lending more than the property is worth.
Why is a Home Appraisal Necessary?
The primary purpose of a home appraisal is to protect the interests of all parties involved in the transaction. For buyers, it ensures that they are not overpaying for a property. For sellers, it confirms that their asking price is in line with the fair market value. And for lenders, it guarantees that they are not lending more money than the property is worth, as the property serves as collateral for the loan.
2. The Home Appraisal Process: What to Expect
The home appraisal process typically involves several steps, from the lender ordering the appraisal to the appraiser visiting the property and conducting a thorough evaluation. Here’s an overview of what you can expect during a home appraisal:
- The lender orders the appraisal: In a home buying situation, the lender will order the appraisal after the buyer’s offer has been accepted and the purchase agreement has been signed. When refinancing, the lender typically orders the appraisal after the homeowner applies for the new loan.
- The appraiser assesses the property: The appraiser will either visit the property in person or conduct a remote evaluation using photographs and information provided by the homeowner or a third party.
- The appraiser reviews comparable properties: In addition to assessing the property, the appraiser will analyze recent sales of similar properties in the area, known as “comps,” to determine the property’s value.
- The appraiser delivers the report and valuation: After completing the evaluation and market analysis, the appraiser will prepare a report, typically using the Uniform Residential Appraisal Report (URAR) form, and submit it to the lender. The borrower is entitled to a free copy of the report before the loan closes.
3. How Much Does a Home Appraisal Cost?
The cost of a home appraisal varies depending on factors such as the property’s size, location, and unique features. While a typical home appraisal used to cost between 450, the average cost has risen to around 700 as of early 2023. For larger or more complex properties, the fee could be even higher.
Though the lender orders the appraisal, the borrower is usually responsible for covering the cost as part of the loan’s closing costs.
4. Factors Considered During a Home Appraisal
Home appraisers take into account a wide range of factors to determine a property’s fair market value. Some of the key characteristics they consider include:
Structural Factors
- Square footage
- Number of bedrooms and bathrooms
- Foundation type
- Roof and overall structure condition
- Cosmetic updates and desirability of finishes
External Factors
- Neighborhood setting (urban, suburban, or rural)
- Lot size
- Driveway surface and car storage
Additions and Updates
- Energy-efficient features
- Fireplaces or wood stoves
- Fencing
- Patios or decks
- Porches
Other Factors
- Comparable property sales
- Market conditions
- Financing terms
5. Home Appraisal vs. Home Inspection
While both home appraisals and home inspections involve assessing a property, they serve different purposes and are conducted by different professionals.
A home appraisal is carried out by a licensed appraiser and is focused on determining the property’s value. In contrast, a home inspection is performed by a licensed home inspector and is focused on evaluating the property’s condition, identifying potential issues, and recommending repairs or improvements.
A home appraisal is required by lenders to ensure that the property’s value is in line with the loan amount, while a home inspection is typically requested by buyers to gain insight into the property’s overall condition and potential maintenance needs.
6. Preparing for a Home Appraisal
Whether you’re a buyer, a seller, or a homeowner looking to refinance, there are several steps you can take to prepare for a home appraisal and ensure the best possible outcome:
Gather Documentation
Provide the appraiser with relevant documents, such as a property survey or plot plan, recent tax bills, information on shared driveways or easements, and a list of recent upgrades and repairs with their respective costs.
Clean and Declutter
A clean, well-maintained home leaves a positive impression on the appraiser. Ensure that your home is clean and clutter-free, both inside and out. Pay particular attention to the home’s exterior, as curb appeal can have a significant impact on the appraised value.
Make Necessary Repairs
Address any minor issues, such as leaky faucets, missing door handles, or chipped paint, before the appraisal. If there are any significant issues that could negatively impact the appraisal, consider addressing them beforehand or providing the appraiser with documentation of planned repairs or renovations.
7. Dealing with a Low Home Appraisal
If a home appraisal comes in lower than expected, there are several options available to both buyers and sellers:
Review the Appraisal Report
Go through the appraisal report with your real estate agent to identify any errors or discrepancies that may have led to the low valuation. If you find any issues, request a reconsideration of value from the lender, providing supporting evidence for your claim.
Obtain a Second Opinion
If you still believe the appraisal is inaccurate, consider obtaining a second appraisal from a different appraiser. This may require switching lenders or covering the cost of the second appraisal out-of-pocket.
Negotiate with the Other Party
If the appraisal comes in lower than the agreed-upon purchase price, buyers and sellers can negotiate to find a solution. This may involve the seller lowering their asking price, the buyer increasing their down payment, or both parties meeting somewhere in the middle.
8. Special Considerations for FHA Appraisals
Federal Housing Administration (FHA) appraisals are more stringent than conventional appraisals, as they require the appraiser to evaluate potential health, safety, and structural issues in addition to determining the property’s value. This includes checking for hazards, such as lead-based paint, termites, and improper drainage, as well as assessing the overall condition of the home.
If any issues are identified during an FHA appraisal, the seller may be required to make repairs before the loan can be approved. Alternatively, a qualified specialist can be hired to inspect the flagged issues and confirm that they are not unsafe.
9. The Impact of a Hot Market on Home Appraisals
In a hot real estate market with limited inventory and multiple bidding wars, the chances of a low appraisal increase. Buyers may be tempted to offer more than a property is worth, leading to a potential appraisal gap between the offered price and the appraised value.
To avoid appraisal issues in a hot market, consider negotiating an appraisal gap guarantee with the buyer. This agreement requires the buyer to cover the difference between the appraised value and the purchase price, up to a specified limit, if the appraisal comes in low.
10. Tips for a Successful Home Appraisal
To ensure a successful home appraisal, follow these tips:
- Prepare an appraisal package with relevant documentation, such as recent comparable sales and a list of recent renovations and updates.
- Deep clean your home and declutter to make a positive impression on the appraiser.
- Secure your pets during the appraisal to allow the appraiser to work efficiently.
- Spruce up your yard by removing weeds, trimming hedges, and clearing debris.
- Touch up exterior paint, particularly if your home was built before 1978 and may have lead-based paint.
In conclusion, understanding the home appraisal process and being prepared can help ensure a smooth and successful transaction. By following the tips and information provided in this guide, you can navigate the home appraisal process with confidence and secure the best possible outcome for your home purchase, sale, or refinance.
Our team of experts helps hundreds of Buyers and Sellers a year navigate the appraisal process. Click below to get in touch with us!