When you’re applying for a mortgage, refinancing your existing mortgage, or selling your home, an appraisal is a vital part of the process. Appraisers can help determine your home’s value and ensure you receive the best possible deal.
An appraiser uses several factors to determine the value of a home, including its size, location, condition, and amenities,
The appraisal process is essential for buyers, sellers, and property owners because it helps establish an accurate value for a home. Appraisers use many factors when determining the worth of a property. This information can be used in negotiations or court proceedings if there is disagreement over the value of a house.
Appraising a house should never be taken lightly, as so much is riding on it. Let’s look at everything you need to know about appraisals for homes.
What is a Real Estate Appraisal?
An appraisal is an unbiased professional opinion of a property’s value. Appraisals are traditionally used in real estate transactions and are common in refinancing a home loan. Licensed home appraisers conduct Real Estate appraisals.
An appraisal is a tool used in a purchase-and-sale transaction to determine whether the purchase price for the home is appropriate.
In refinance transactions, the home appraisal process assures the mortgage lender that they aren’t loaning the borrower more money than the fair market value.
Mortgage lenders want to ensure homeowners are not overborrowing because the property serves as collateral for the loan
If the borrower defaults on their mortgage, the lender may sell the home to recoup any borrowed money. The lender goes through the foreclosure process to recoup their funds.
The bank can use the appraisal on homes to help protect itself from lending more than it would be able to recover in a worst-case scenario.
Appraising property is an art and a science. An appraisal in real estate is done on a vast amount of transactions daily.
The Real Estate Appraisal Process and Cost
The lender generally orders an appraisal to be done to protect its interests. The borrower usually pays the appraisal fee. Mortgage lenders no longer have direct communication with a real estate appraiser but instead must communicate through appraisal management companies.
A lack of communication between the parties was put in place to ensure there was no tampering with the appraisal value due to established relationships.
The home appraisal cost runs between 300-700 dollars, although the fee can vary depending on the location in the US, size, and the level of detail required. Appraising a house is done by a licensed appraiser who should know the local real estate market.
According to federal regulations, an appraiser must be impartial and have no personal or financial interest in appraising the transaction. When a real estate appraiser has completed their work, they will submit a home appraisal report to the lender.
Understanding Home Appraisals
Are you interested in understanding what to expect from your property appraisal? Real estate appraisals are integral to purchasing and selling a property, particularly if the buyer is seeking funding from a lender.
The appraised value of a home can make or break a sale, so it only makes sense that so much weight is put on it.
Whether you are buying or selling, you have minimal control over a home appraisal – but that doesn’t mean you need to be in the dark about what it involves and how it is determined.
People usually discover numerous myths about real estate appraisals the hard way. As a buyer or seller, it is essential to have at least a general understanding of how appraisals work.
Below I am going to summarize what you should know about home appraisals. These 17 appraisal questions should better help you know the process.
Understanding what an appraisal is and how it works is crucial to buyers and sellers.Click To Tweet
1. Is There a Difference Between a House Appraisal and a Home Inspection?
Most real estate transactions involve a home appraisal and an inspection, but they are very different things.
An appraisal inspection focuses on determining the market value of the home. The value is based on various factors, including the cost of similar homes in the area.
A home inspection is supposed to identify problems with the home. While an appraisal may look for obvious flaws, a home inspection goes much deeper. With certain kinds of loans, however, they can become intertwined.
For example, a home must meet specific condition requirements to be approved for an FHA loan. It behooves sellers to understand how to make their home FHA mortgage compliant. Why? Many home buyers will use FHA financing to purchase a home.
When a borrower uses an FHA loan, the appraiser will look the home over to make sure it meets the FHA’s minimum standards for the condition.
2. What Does The Real Estate Appraiser Look at?
A common question many people ask is what is appraised.
Like a home inspector, a real estate appraiser will go throughout the home to inspect its state of repair, features, square footage, number of bedrooms, number of baths, etc. Mostly, the appraiser looks for all the factors that determine the general market value of a property. People often ask what does an appraiser do. You can find out in this comprehensive resource.
The appraiser will go through every room, noting all the big and small details required to accurately compare the home to other homes to measure its value.
When all the house details are collected, the appraiser can look over the recent sales of similar homes by looking at public records. Appraisers will search for comparable properties and compare them to the subject property to deliver the final appraisal price.
The sales comparison approach is the most common form of real estate valuation.
3. Are There Different Types of Home Appraisals?
The most common home appraisal is when an appraiser visits a house and inspects the inside and outside of the property. An exterior-only inspection is also possible, known in the industry as a “drive-by appraisal.” There are also “desktop appraisals” where the appraiser doesn’t do a physical inspection of the property.
A drive-by appraisal is undoubtedly not as comprehensive and is often used when the lender doesn’t doubt the value of a home supporting the mortgage amount being requested.
The appraisal is an essential part of most real estate transactions!Click To Tweet4. What Will You See in a Real Estate Appraisal Report?
- An appraisal report will have specific details about the subject property. There will be a side-by-side comparison of similar properties that have sold and are for sale. These are known as comparable sales or “comps.”
- The appraiser will evaluate how the area’s real estate market is performing. Market conditions play a significant role in a home’s value.
- The appraiser may provide concerns in the report about issues he or she feels are harmful to the property’s value.
- There will be flagged descriptions of any significant problems such as cracks in a foundation or water penetration through the roof.
- A house appraisal will estimate the average sales time for other similar homes.
- Home appraisals will provide whether values are on the rise, decreasing, or stable. They will determine whether it is a buyer’s or seller’s market.
- A description of the home’s area, such as a neighborhood, country road, or busy street.
- The home’s appraisal should include contact information for the appraiser, including their licensing information.
5. Are Home Appraisals Necessary?
5. Are Home Appraisals Necessary?Home appraisals are always a good idea for property transactions, and they are required for any home sale that needs a mortgage loan. Appraisers use their experience and training to give an accurate view of the value of a home.
Since buyers want to spend only what is necessary, and home sellers want to generate as much income from a sale as possible, it makes sense to decide the home’s value before money changes hands.
Lenders also demand appraisals before giving out loans to protect themselves. If, for some reason, the buyer defaults on the loan, the lender wants to know that they can sell the property and get back their money.
Lenders never want to see a low appraisal on a home purchase for which they are lending money.
They expect the property value to be equal to or greater than the sale price. A gap in value causes appraisal issues that need to be corrected, especially when there is an appraisal contingency in a purchase agreement.
6. Who is The Appraiser, and How Are They Hired?
- The lender giving the mortgage hires the appraiser through a third-party company. Appraisers and lenders are no longer allowed to be in direct communication.
- Appraisers become licensed after completing licensing coursework and internship hours.
- The appraiser has to be an objective third party with no financial or other connection to any person involved in the transaction.
- The property being appraised is called the subject property.
7. Is The Home Appraisal Information Available to Anyone?
No. The appraisal is owned by the party that orders it – which is not necessarily the party who pays for the appraisal. It’s possible, although rare, that the homeowner will pay for the appraisal to move the sale forward and find themselves frustrated that they can’t access the appraisal information.
If the lender orders the appraisal, no matter who pays for it, then the lender is the party in control of who has access to that information. It is up to the lender to inform the buyer or the seller what the home is appraised for in such a situation.
More often than not, however, the buyer is paying for the appraisal as part of getting a mortgage. The mortgage holder must give the buyer a copy of the appraisal report by law.
If requested, the buyer can give the real estate appraisal to the seller or their agent.
8. Is The Home Appraisal The Final Word on The Property Value?
No, the appraisal can be challenged. If you do not like the value determined by the appraiser, you do have recourse. Your real estate agent can talk with the appraiser and ask questions about why decisions were made that you disagree with. It is possible the appraiser missed something.
Everyone makes mistakes, even experienced professionals. It is also possible that your perspective on the value of your home differs from the appraiser.
While you may think that certain aspects of your home are of a particular value, the appraiser may not see it that way. If you are unhappy with the appraisal, you can request another one. Now and then, a low appraisal will be fought. Just be sure you have a good cause because the most likely outcome is that the new appraiser will produce a similar opinion as to the last one.
In such circumstances, be prepared to present a valid argument as to why you believe the appraisal is wrong. If you hired an exceptional real estate agent, they should be ready to help you with this.
It should be noted, however, that disputing a home appraisal is difficult. Most challenges of an appraisal are not successful unless the appraiser made egregious errors.
9. How Long Does an Appraisal Take?
One of the most often asked questions about real estate appraisals is how long they take to complete.
Once an appraiser is hired to conduct a property appraisal, it will be scheduled with the seller’s real estate agent. Appraisers typically take seven to ten days to look at a property, research the property’s history and prepare an appraisal report. The actual inspection of the property will only take around 30 minutes to an hour, depending on the size of the home.
When visiting, the appraiser will take pictures of the home’s interior and exterior. They will also sketch the floor plan and take notes on any critical aspects of the property that could influence their appraisal.
In times when there are numerous purchases and refinances, home appraisals can be delayed. In fact, The National Association of Realtors has reported that appraisals are responsible for around eighteen percent of all delays in a real estate transaction.
The time it takes for the appraisal to be completed will vary depending on the complexity of the evaluation and the appraiser’s workload or schedule.
10. Who Should Be at The Appraisal?
The appraisal should be attended by the appraiser and the seller’s real estate agent. The homeowner, if possible, should not be home during the appraisal process. The appraiser can do their job far easier when they can move freely throughout the home.
A buyer never attends a real estate appraisal.
11. Why is Your Neighbor’s House Valued Higher Than Yours?
11. Why is Your Neighbor’s House Valued Higher Than Yours?Often, homeowners are frustrated to discover that their homes are not as valuable as similar homes in their area. They may feel that their homes are more beautiful than the neighbors; they may have made additions that they felt should have added more value, etc.
If you find yourself in such a situation, try to be patient and consider the possible reasons why the homes were appraised differently.
Your neighbor may have more square footage than you realize, more oversized bathrooms, more extravagant finishes, or other things that can make a home more valuable. It’s possible the neighbors made improvements that added value to their home while yours did not.
If you think the appraiser made a mistake, you can always ask him or her why the discrepancy exists.
12. How Often Do You Need to Get a Home Appraisal?
In most situations, an appraisal is considered valid for six months. However, in specific markets, where home prices are changing rapidly, some lenders may only use an appraisal for three months or so.
Also, remember that the appraiser will only consider finished improvements to the home. You cannot ask them to determine value based on good faith.
Essentially, the value the appraiser comes up with is valid for the day they completed their report. Real Estate values are continually changing. Sometimes an appraisal will need to be re-certified if it becomes outdated.
If you are selling a home and have gotten an appraisal, don’t think the buyer’s lender will use it. They will not! The lender holding the mortgage will order their own independent appraisal.
Quite often, sellers will waste their money on an appraisal, thinking it justifies their asking price. Sorry, but it doesn’t work that way. The lender will not even consider looking at an appraisal that was paid for by the seller.
13. Can I Use My City’s Property Assessment in Place of a Home Appraisal?
No. An assessed home value from a city or town is NOT the same as a house appraisal. A property assessment covers a wide area and serves a different purpose than a home appraisal. An appraisal is precise and designed to give the most accurate value of a home at the time of the appraisal. Property tax assessments are intended to get a general idea of what property taxes should be.
Property assessors use their figures as a measuring stick for municipalities to collect a certain amount of money to cover expenditures to run a city or town. The assessed value and market value are two very different things. The appraised value is something different from the assessed value as well.
14. Is a Zestimate from Zillow the Same as an Appraisal?
NO! This cannot be emphasized enough; a Zillow estimate is nothing like an appraisal and cannot be used as a substitute. In fact, using a Zillow home value is one of the worst ways to put a value on a property.
A Zillow Zestimate should be ignored whether you buy or sell a home. It is a worthless piece of information! Sometimes, the Zillow value is off by over $100,000 from the actual value.
An appraiser will give a far more accurate value reporting than a Zillow estimate ever could. Never assume that information on Zillow has any relation to a home appraisal.
Don’t be a DUMMY – using a Zillow value is like a bad car crash waiting to happen!
15. What Does a House Appraisal Cost?
Lots of folks wonder, “how much is a home appraisal”? Appraisal costs can vary depending on the complexity of the property. An appraisal of a typical property would be in the ballpark of 300-700 dollars, depending on the area of the country.
Home appraisal costs will also vary from state to state. The buyer is generally the one who will be paying for the appraisal. The appraisal cost will be figured into the buyer’s closing costs charged by the lender.
The appraiser who will be doing the appraisal will be trained, licensed, and insured. The mortgage company or lender hires them to ensure they are wise to lend money to the borrower based on the appraised value.
The appraiser should be offering an independent and impartial analysis of the property. There should not be any outside factors that influence an appraiser’s judgment of value. Years ago, the lender communicated directly with the home appraiser. Today that is no longer the case.
A local real estate agent or mortgage broker should provide a more concise estimate of what you can expect to pay for an appraisal.
16. How Rigid Are The Standards For Home Appraisals?
It can be tempting to consider a real estate appraisal as guesswork, but that would be inaccurate. There are rigid standards for appraisals that every licensed appraiser must adhere to. In other words, an appraiser cannot deviate from accepted norms when conducting an appraisal.
There is a lot that goes into the appraisal process that people don’t see. Much of the work of an appraiser is done behind the scenes.
Lenders trust appraisers to protect them from considerable financial risk, so it is reasonable for everyday buyers and sellers to do the same. Appraisers, however, are human, just like everyone else.
From time to time, they can make mistakes just like you and I. Don’t assume everything an appraiser says is the gospel. Home appraisals are opinions of value.
17. How Do I Find an Appraiser?
What if you are going to be selling a home and it is truly unique? Does this sound like your place? In this circumstance, where similar properties are hard to find, it might make sense to hire a professional appraiser.
Getting the correct asking price should be of paramount importance. The appraiser can help you do that on hard-to-price properties. When you don’t know any appraisers, the best source of getting a referral will be from a real estate agent. They deal with appraisers all the time.
If you are selling by owner or don’t know a real estate agent, a Google search will be helpful. You can do an online search for real estate appraisers near me or real estate appraisers nearby.
You should see some you can research. Like anything else, ask for references from them.
Final Recap on House Appraisals
Most real estate agents will emphasize how vital pricing a home correctly is to the sale of your property. Pricing issues are the #1 cause of why homes don’t sell. If you overprice your property, it’s not going to appraise. Keep these things in mind when trying to sell your home.
If you are buying a home, the appraisal will go a long way towards establishing whether you paid the right amount for the property.
Hopefully, you now know a lot more about home appraisals!
About the Author: The above Real Estate information on what to know about home appraisals was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. Bill has helped people move in and out of many Metrowest towns for the last 35+ Years.
Are you thinking of selling your home? I am passionate about real estate and love sharing my marketing expertise!
I service Real Estate Sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, and Uxbridge MA.
Great article you have here Bill! Thanks for a time well-spent. This is very helpful especially for first time home sellers as this will give them the “big picture” as well as have a better understanding on appraisals. Always have in mind that your real estate agent can advise you about the appraisal process and help you decide how to handle a low house appraisal to match your interests.
Great post on appraisals Bill! Very valuable and interesting. Could learn a lot from your tips.
Hello Bill,
Great article. Appraisals can be confusing for many consumers. I had an appraisal performed on one my primary residences recently. The property did not appraise where I needed it to be. The appraiser reported there were not enough comps recently to support a higher appraised price for my property.
Should I consider waiting 6 months? The local market is very vibrant and spring is around the corner.
Kevin it is certainly possible that your home could appraise for a higher dollar amount in six months. As you mention, there will need be additional homes sold that can support a higher value for your property.
Appraiser here in NJ & SC. Great article! Im saving this and sharing.
Thanks Beth that means a lot coming from an appraiser!
Great article! Could not agree more on your comment with respect to using the Zillow estimate as a proxy for the market value of any specific house. Deriving a market price for a particular house/property requires a very thorough adjustment of the prices of comparables to account for the differences in a multitude of characteristics between the house considered and each of the comparables.
“While you may think that certain aspects of your home are of a certain value, the appraiser may not see it that way” well said, Bill. My appraiser did the same by giving very low appraisals, which was unimaginable. Later I connected with Springbord for real estate appraisal services. The appraisals given by them were beyond my expectations. They did a great job.