Home Appraisal

An appraisal serves as an impartial evaluation of a home’s value and is a standard procedure in both home purchases and refinancing. In a purchase-and-sale scenario, it helps determine if the agreed-upon price aligns with the home’s condition, location, and features. For refinancing, it assures the lender that the loan amount doesn’t exceed the home’s value.

Here’s how the process typically unfolds:

  • Scheduling and Visit: After agreeing on a price, the lender arranges for a home appraiser to visit. The appraiser inspects the property, both inside and out, noting its condition, structure, safety, and any upgrades. They may take photos during the visit.
  • Report Generation: Using a standardized template, such as the one by Fannie Mae, the appraiser compiles their findings into a comprehensive report.
  • Data Analysis: The appraiser researches recent sales of comparable homes in the area to gauge the property’s worth. They consult government records and the Multiple Listing Service (MLS) for relevant data.
  • Valuation Approach: Depending on the situation, the appraiser may use the sales comparison approach, comparing the home to similar properties, or the cost-based approach, estimating the current building cost plus land value.

Given the evolving circumstances, such as concerns about COVID-19, the process may adapt. For instance, appraisers might conduct alternative appraisals, relying on exterior inspections and digital documentation of the interior.

How Much Does a Home Appraisal Cost?

The average cost of a home appraisal is around $500, according to the 2023 Appraisal Survey conducted by the National Association of Realtors (NAR). However, the actual expense can vary significantly based on several factors, including the home’s size and its location in a metropolitan area.

Here’s a breakdown of the appraisal costs reported in the NAR survey, based on responses from over 2,500 members:

  • Less than $300: 7%
  • $300 to $399: 7%
  • $400 to $499: 21%
  • $500 to $599: 30%
  • $600 to $699: 20%
  • $700 to $799: 7%
  • $800 or more: 8%

So while $500 is the typical cost, there’s notable variation, with a significant portion falling within the $400 to $599 range. Factors like the complexity of the appraisal, the expertise of the appraiser, and local market conditions can influence the final cost.

How Long Does a Home Appraisal Take?

The duration of a home appraisal process can vary depending on several factors:
  • On-Site Inspection: If an appraiser conducts an on-site inspection, it typically lasts between one to three hours. However, if it’s a drive-by appraisal, where only the exterior is assessed, the time may be shorter.
  • Report Delivery: After the appraisal, it may take around two weeks to receive the report. According to the NAR 2023 Appraisal Survey:
    • 1 to 5 days: 17%
    • 6 to 10 days: 32%
    • 11 to 20 days: 36%
    • 21 to 30 days: 14%
    • More than 30 days: 1%
    The median time for report delivery was 11 calendar days, with nearly half of the reports received within 10 days.
  • Factors Influencing Wait Times: The size and complexity of the home, as well as the workload of the appraiser, can impact the time it takes to receive the appraisal report.

Decoding Your Home Appraisal Report

Upon receiving your home appraisal report, your initial focus may be on the final appraisal value, especially if it aligns closely with the proposed sales price. A match or close proximity between the two typically ensures a smooth loan process.

However, it’s important to note that appraisal issues can still arise. In fact, according to a National Association of Realtors study in June 2020, 18% of home purchase closing delays and 9% of terminated contracts were attributed to appraisal complications.

Here’s what you can expect to find in your home appraisal report:

  • Appraisal Value: This section will present the determined value of your home, typically defined as market value, along with the effective date. The validity of the appraisal usually extends for four months.
  • Property Characteristics: Detailed information about your property, including its features and condition, will be outlined in this section.
  • Market Background: The report will provide insights into the local market, your home’s location, and the data used to support the appraiser’s valuation, including comparable properties.
  • Special Instructions: Any specific instructions from the lender or other relevant agencies will be included in the report.

How To Challenge a Home Appraisal Report

If you believe your home appraisal report doesn’t accurately reflect your property’s value and you want to contest its conclusions, you can take steps to challenge it:

  • Contact the Lender: Reach out to your lender to express your concerns about the low appraisal. It’s advisable to do this in writing to ensure clarity and documentation of your communication. The lender may consider your concerns and could potentially order a revised appraisal.
  • Identify Issues: Carefully review the appraisal report for any discrepancies or errors that may have influenced the low valuation. Some common issues to look for include:
    • Incorrect number of rooms or failure to account for essential features like a garage.
    • Inaccurate square footage that doesn’t match the actual size of your property.
    • Use of comparable sales that are not in proximity to your home or are outdated, impacting the valuation.
    • Neglecting to consider significant upgrades or renovations that could enhance your home’s value.
  • Gather Evidence: Compile relevant evidence to support your challenge. This may include documentation of recent upgrades or renovations, accurate measurements of your property, and comparable sales data from your area that better aligns with your home’s value.
  • Submit a Formal Request: Present your findings and evidence to the lender in a formal request for a reconsideration of the appraisal. Provide clear and concise explanations of why you believe the initial appraisal is inaccurate and provide supporting documentation.
  • Consider a Rebuttal or Second Opinion: If the lender is unwilling to order a revised appraisal, you may have the option to submit a rebuttal challenging specific points in the appraisal report. Additionally, you could seek a second opinion from another qualified appraiser to provide an alternative valuation.

How a Real Estate Appraisal Can Help a Buyer

A real estate appraisal, although primarily serving the mortgage lender, can also offer significant benefits to buyers:

  • Confirmation of Home Value: Typically, an appraisal validates the agreed-upon purchase price, providing assurance to both buyer and seller. This confirmation allows the closing process to proceed smoothly, without delays or disputes over the property’s value.
  • Bargaining Power for Buyers: In the event of a low appraisal, buyers gain leverage in negotiations. The discrepancy between the appraised value and the purchase price may prompt the seller to reconsider or adjust the terms of the deal. This gives buyers the opportunity to renegotiate for a lower price or request repairs or concessions to compensate for the difference.
  • Increased Home Equity: A higher-than-expected appraisal can significantly benefit buyers by boosting their home equity. This surplus equity can be advantageous for various purposes, such as avoiding mortgage insurance, qualifying for better loan terms, or accessing funds through a home equity loan or line of credit in the future. Importantly, since sellers are typically unaware of the appraisal value, buyers may not need to renegotiate the purchase price, thus maintaining the original terms of the agreement.

Appraisal Tips for Home Sellers

For home sellers preparing for an appraisal, here are some essential tips to maximize the value of your property:

  • Ensure Functionality: Verify that essential mechanical systems, such as the electric garage door opener, are in proper working condition. Address any issues promptly to avoid potential deductions in the appraisal.
  • Address Repairs: Prioritize fixing any visible repairs, particularly safety concerns like faulty railings or steps. These issues not only impact safety but can also lower the perceived value of your home during the appraisal process.
  • Maintain Exterior: Attend to the roof, windows, and siding to ensure they are in good condition. Address any leaks or damages promptly, as they can imply ongoing issues within the home and negatively impact the appraisal value.
  • Basic Cleanup: Conduct a thorough cleanup both inside and outside the house to enhance its overall appearance. Eliminate clutter and ensure the property presents well, as a neat and tidy home can positively influence the appraiser’s perception of its value.
  • Highlight Improvements: Provide information to the appraiser about any notable property improvements, such as a new roof, updated siding, or recently installed HVAC systems. These enhancements can potentially increase the appraised value of your home.
  • Curb Appeal: Maintain the exterior of your home to enhance its curb appeal. An unkempt front yard or exterior can detract from the overall impression and potentially lower the appraised value. Invest in landscaping, exterior cleaning, and minor repairs to boost curb appeal.
  • Monitor Neighborhood Sales: Stay informed about recent sales in your neighborhood, particularly distressed sales that may not reflect the true market value of homes. Inform the appraiser about any relevant market conditions that could impact your home’s appraisal value.

Appraisal Tips for Refinancing Homeowners

For homeowners planning to refinance, it’s crucial to ensure that the appraised value of their home aligns with their expectations and financial goals. Here are some essential tips to navigate the refinancing process effectively:

  • Monitor Appraised Value: Keep track of the appraised value of your home to ensure it hasn’t decreased since your initial purchase. A decline in value could impact your refinancing options, affecting factors such as loan-to-value ratio, interest rates, and the need for mortgage insurance. Stay informed about market trends and property values in your area to anticipate any potential changes.
  • Highlight Recent Upgrades: Emphasize any recent upgrades or renovations that have been made to your home. These improvements can positively influence the appraised value by demonstrating that the property has maintained or increased its worth over time. Provide documentation and details about the upgrades to the appraiser to ensure they are taken into account during the appraisal process.
  • Maintain Equity: Be mindful of your home’s equity position, especially in relation to the refinancing terms you’re seeking. A decrease in home value could impact your equity, potentially affecting loan terms and eligibility for certain refinancing options. Consider strategies to maintain or increase your home equity, such as making additional principal payments or investing in home improvements that add value.
  • Understand Financial Implications: Recognize the financial implications of any changes in appraised value on your refinancing terms. A decrease in home value may necessitate adjustments to loan terms, interest rates, or loan-to-value ratios, which could impact your overall refinancing strategy. Consult with your lender or financial advisor to understand how changes in home value may affect your refinancing options and financial goals.

Appraisal Report

An appraisal report is a comprehensive document that provides an assessment of a property’s value, typically using standardized formats such as the Uniform Residential Appraisal Report from Fannie Mae for single-family homes. Here’s what you can typically expect to find in an appraisal report:

  • Property Description: A detailed description of both the interior and exterior of the property, including its condition, features, and amenities. This section may also include information about the neighborhood and surrounding area.
  • Comparable Sales Analysis: The appraiser identifies and analyzes recent sales of comparable properties (comps) in the vicinity of the subject property. These comps serve as benchmarks for determining the property’s value.
  • Valuation Analysis: Based on their observations and analysis, the appraiser provides their conclusions regarding the property’s value. This includes an explanation of the appraisal methodology used and the reasoning behind the final valuation.
  • Visual Documentation: The appraisal report typically includes visual documentation of the property, such as:
    • Street map showing the location of the subject property and comparable sales.
    • Exterior building sketch outlining the layout and dimensions of the property.
    • Photographs of the property’s front, back, and street view.
    • Front exterior photographs of each comparable property used for comparison.
  • Square Footage Calculation: An explanation of how the square footage of the property was calculated, detailing the measurements and areas included in the calculation.
  • Supporting Data: The report may include additional information and data sources used to determine the property’s fair market value. This may include market sales data, public land records, tax records, and other pertinent information.

Homebuyers and Sellers need to know about Appraisals:

For Homebuyers:

  • Critical Step in Closing: The appraisal is a crucial step in the closing process when buying a home. If it matches or exceeds the contract price, the transaction proceeds smoothly. However, if it falls short, it can delay or jeopardize the deal.
  • Negotiating Tool: A low appraisal can serve as leverage for buyers to negotiate a lower price with the seller. Remember, the bank won’t lend more than the home’s appraised value, protecting buyers from overpaying.
  • Addressing Issues: If you disagree with the appraisal, consider seeking a second opinion from another appraiser or presenting a factual case for a higher valuation to the original appraiser. Mistakes, imperfect information, and biases can affect appraisals.

For Home Sellers:

  • Price Adjustment: A low appraisal may require sellers to lower their home’s price to facilitate the sale. Waiting for an all-cash buyer who bypasses the appraisal process is unlikely to succeed, as even cash buyers seek fair market value.
  • Market Conditions: Distressed sales in the neighborhood, such as foreclosures or short sales, can impact the appraisal value of a home. Sellers can argue for a higher valuation if their property is in significantly better condition than distressed properties in the area.

What Do Home Appraisers Look For?

During the home appraisal process, appraisers assess various factors to determine the fair market value of a property. Here’s what they typically look for:

  • Location and Comparable Home Values: Appraisers consider the property’s location and compare it to recently sold homes in the area. They assess the quality of the neighborhood, lot size, number of bedrooms and bathrooms, age, and type of house. Renovations or improvements are also taken into account.
  • Condition of the Home: Appraisers evaluate the overall condition of the home, including its curb appeal and any visible damage. They inspect the foundation and structural integrity, as well as the HVAC, plumbing, and electrical systems. Signs of termites or other pests are noted, along with the condition of appliances. Notable improvements or upgrades that add value to the home are also considered.
  • Potential Issues and Inspections: If there are signs of potential issues, such as roof damage or pest problems, appraisers may order additional inspections, such as roof, pest, or water inspections. If these inspections uncover conditions that do not meet the lender’s requirements, repairs may be necessary before the lender approves the mortgage.

Home Appraisal Tips For Sellers

Here are some valuable tips for sellers to maximize the appraisal value of their home:

  • Get Your Own Assessment: Before the licensed appraiser arrives, consider having a real estate agent tour your property. They can provide objective feedback and suggest improvements. Ensure health and safety features like smoke detectors and HVAC systems are in top condition.
  • Research Comparable Sales: Research recent sales in your local market to understand current property values. Utilize public records and ask your agent for a comparative market analysis (CMA) to identify similar properties.
  • Complete Small Repairs: Focus on aesthetic improvements to make your home look well-maintained. Patch holes, touch up paint, tighten handles, and clean gutters. A tidy, well-maintained home can enhance its appraised value.
  • Deep Clean and Declutter: Prior to the appraisal, thoroughly clean and declutter your home. Remove excess furniture, clear countertops, and replace dingy curtains. Enhance natural light by hanging mirrors and brightening dark rooms.
  • Document Offers: If you received multiple offers, document them as evidence of your home’s value. Multiple bids indicate that your sale price was appropriate for the market, potentially influencing the appraiser’s assessment.

Home Appraisal Tips For Refinancers

Here are some valuable tips for homeowners preparing for a home appraisal as part of the refinancing process:

  • Provide a Record of Upgrades: Document any upgrades or renovations you’ve made to your home. Include details such as the cost of the project, building permit references, and dates of completion. This information helps the appraiser accurately assess the value added by these improvements.
  • Be Available for Questions: Be present during the appraiser’s visit to answer any questions they may have about your home. While it’s important to be available for clarification, avoid influencing the appraiser’s assessment or directing their attention to specific features.
  • Stage Your Home: Prepare your home for the appraisal as you would for a sale. Remove clutter, tidy up, and enhance curb appeal. Rearrange furniture, clean shelves, and consider tidying outdoor spaces. Creating a well-presented home can positively influence the appraiser’s perception of its value.

Home Appraisal Tips For Buyers

Here are some essential tips for buyers to navigate the home appraisal process:

  • Craft Your Offer Carefully: Before submitting an offer, research the local housing market and previous home sales in the neighborhood. Avoid offering more than the property’s appraised value to mitigate the risk of a low appraisal. Starting with a more modest offer can help ensure the purchase price aligns with the property’s market value.
  • Dispute an Inaccurate Appraisal: In rare cases of inaccurate appraisals, buyers may dispute the valuation. If you suspect errors in the appraisal process, consult your real estate agent and lender to gather additional information and potentially appeal the appraisal. Issues such as incomplete property inspections or inaccuracies in comparable sales data may warrant a reassessment.
  • Stay Open-Minded: Be prepared for the possibility of a home not appraising at the expected value. While disappointing, low appraisals serve to protect buyers from overpaying for a property. Consider whether the discrepancy is due to valid reasons or if it indicates a mismatch between the property’s value and your expectations. In some cases, it may be necessary to walk away and explore other housing options that better align with your budget and requirements.

Tips to Prepare Your Home for Appraisal

Preparing your home for an appraisal doesn’t have to be daunting. Here are ten easy tips to get your home ready:

  • Ensure Safety Equipment is Functional: Check that smoke alarms, carbon monoxide alarms, and security systems are installed and in working order.
  • Inspect for Damage: Walk around your home and address any damage that could lower its value, such as loose floorboards, roof leaks, or malfunctioning gutters.
  • Highlight Home Improvements: Inform the appraiser of any upgrades you’ve made, such as HVAC replacements, roof installations, or kitchen remodels.
  • Spruce Up Your Home: Give your home a fresh look by repainting walls, hanging new curtains, and updating fixtures like doorknobs and faucets.
  • Research Comparable Homes: Research similar properties in your neighborhood to understand their value and any appraisal challenges they faced.
  • Deep Clean Your Home: Clean walls, shampoo carpets, and declutter to give your home a newer, more attractive appearance.
  • Enhance Curb Appeal: Mow the lawn, trim trees and shrubs, remove dead trees, and add colorful flowers to improve your home’s exterior appeal.
  • Update Materials: Consider updating countertops, cabinets, flooring, and other materials to give your home a modern, timeless look.
  • Address Small Issues: Fix minor problems like damaged floors or outdated fixtures, as they can detract from your home’s value in $500 increments.
    Highlight Area Amenities: Point out nearby amenities like schools, parks, and stores to the appraiser, as they can increase your home’s value.

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