An appraisal is vital when applying for a mortgage, refinancing an existing mortgage, or selling your home. 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 is collateral.
If the borrower defaults on their mortgage, the lender may sell the home to recoup any borrowed money. The lender may also go 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 Appraisal Process and Cost
The lender generally orders an appraisal to protect its interests. The borrower usually pays the appraisal fee. Mortgage lenders no longer communicate directly with a real estate appraiser but must communicate through appraisal management companies.
A lack of communication between the parties was established to ensure that the appraisal value would not be tampered with 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 seeks 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 summarize what you should know about home appraisals. These 17 appraisal questions should help you better understand 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 differ significantly.
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.
A home inspection is supposed to identify problems with the home. While an appraisal may look for flaws, a home inspection goes deeper. However, with certain kinds of loans, 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 inspects the home to ensure it meets the FHA’s minimum standards for 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, 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 about it 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 review 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 involves an appraiser visiting a house and inspecting the inside and outside of the property. An exterior-only inspection, known in the industry as a “drive-by appraisal,” is also possible. There are also “desktop appraisals,” in which the appraiser doesn’t physically inspect 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 requested mortgage amount.
The appraisal is an essential part of most real estate transactions!Click To Tweet4. What Will You See in an 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 indicate whether values are on the rise, decreasing, or stable and 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 These Evaluations Necessary?
5. Are These Evaluations 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, deciding the home’s value before money changes hands makes sense.
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 equal or exceed 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 communicate directly.
- 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 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 it. Although rare, the homeowner may pay for the appraisal to move the sale forward and then 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. In such a situation, it is up to the lender to inform the buyer or the seller what the home is appraised for.
However, the buyer usually pays for the appraisal as part of getting a mortgage. By law, the mortgage holder must give the buyer a copy of the appraisal report.
If requested, the buyer can give the real estate appraisal to the seller or their agent.
8. Is The Appraisal The Final Word on The Property Value?
No, the appraisal can be challenged. If you do not like the value the appraiser determines, you 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. Your perspective on the value of your home may differ from the appraiser’s.
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 to the last one.
In such circumstances, be prepared to present a valid argument about why you believe the appraisal is wrong. If you hire an exceptional real estate agent, they should be ready to help you.
It should be noted, however, that disputing a home appraisal is difficult. Most challenges to appraisals 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 examine 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.
Home appraisals can be delayed during times of numerous purchases and refinances. The National Association of Realtors has reported that appraisals are responsible for 8-20 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 appraiser and the seller’s real estate agent should attend the appraisal. If possible, the homeowner 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 less valuable than similar homes. 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, oversized bathrooms, 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 House Appraisal?
In most situations, an appraisal is considered valid for six months. However, some lenders may only use an appraisal for three months in specific markets where home prices are changing rapidly.
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 complete their report. Real Estate values are continually changing, and 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 independent appraisal.
Quite often, sellers waste their money on an appraisal, thinking it justifies their asking price. I’m sorry, but it doesn’t work that way. The lender will not even consider looking at an appraisal paid for by the seller.
13. Can I Use My City’s Property Assessment in Place of an 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 property taxes.
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, and the appraised value is also different from the assessed value.
14. Is a Zestimate from Zillow the Same Thing?
NO! This cannot be emphasized enough; a Zillow estimate is nothing like an appraisal and cannot be used as a substitute. Using a Zillow home value is one of the worst ways to value 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 Do They 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 also vary from state to state. The buyer generally pays for the appraisal, which is figured into the buyer’s closing costs, which the lender charges.
The appraiser doing the appraisal will be trained, licensed, and insured. The mortgage company or lender hires them to ensure they can lend money to the borrower based on the appraised value.
The appraiser should offer an independent and impartial analysis of the property. No outside factors should 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?
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.
A lot goes into the appraisal process that people don’t see. Much of an appraiser’s work 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.
They can make mistakes from time to time, just like you and me. 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 truly unique home? 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
Most real estate agents will emphasize how correctly pricing a home 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 buy a home, the appraisal will help establish whether you paid the right amount for the property.
Hopefully, you now know a lot more about home appraisals!
About the Author: Bill Gassett, a nationally recognized leader in his field, provided the above real estate information on what to know about home appraisals. Bill has expertise in mortgages, financing, moving, home improvement, and general real estate.
Learn more about Bill Gassett and the publications in which he has been featured. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. For the past 38+ years, Bill has helped people move in and out of Metrowest towns.
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, Natick, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, and Uxbridge Massachusetts.
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.