What Is A Home Appraisal?

An appraisal determines the fair market value for a home. In other words, it assures 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.

 

They’re necessary in most cases, but they 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 if you’re buying your first home or 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, or exterior-only, 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.

​

The Home Appraisal Process

Appraisals are not performed by your mortgage company. Most state laws require that only an independent third party may perform an 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 value of the home. 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 estimation of the value of the property in a formal report. The appraiser then delivers the report to your mortgage lender.

 

Average Home Appraisal Cost (And Who Pays)

As a general rule, most single-family home appraisals cost $300 – $400, while multifamily units typically cost upward of $600.

 

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.

 

Keep in mind that if the property is on a very large plot of land, the appraisal will cost 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 more for an appraisal 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 are becoming less common during the pandemic. It’s a bit too soon to say whether technology embraced during the pandemic is here to stay, but it seems likely that technology will continue to speed up this leg of the home buying process.

 

Home Appraisal Tips For Buyers

Home appraisals can affect both the selling price and mortgage amount. An appraisal value that doesn’t match y

our 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 money to the table on closing day 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 home sales that are comparable to what you’re looking for, 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.

​