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What Is a Home Appraisal? Here Is the Home Appraisal Process and Cost

Home Appraisals Are Not Only Important, They Are Also Required

A home appraisal will determine the market value of a potential property to make sure you are not overpaying for it. Appraisals are to protect the mortgage lender and the buyer; most loan programs will require an appraisal when purchasing a new home. 

An average home appraisal can cost potential buyers between $300-$500 and is usually included in the closing costs. If you are refinancing a home you already own, you may not need one if you meet certain guidelines. 

Below is more information about costs associated with appraisals, what to expect during the process, and why it’s important that you get an appraisal. 

So, What Is a Home Appraisal?

Home appraisals are used to find a property’s “true” value. A property’s condition and features are inspected by a professional real estate appraiser that compares it to recently sold properties in the nearby market. The appraiser will judge multiple factors, like upgrades, plot location, square footage, and amenities. These factors can all impact your home value when compared to similar properties, also known as “comps.” The appraisers are responsible for coming up with a fair market value on the home. 

Why Do Lenders Require Home Appraisals?

An appraisal is usually required by a lender because they want to make sure that the home is actually worth the purchase price and if you default on your mortgage, the lender can sell to cover their losses. You will not be able to get a mortgage loan for a home that is above the appraised home value. This would put lenders at risk of financial loss in the event of foreclosure. 

During the mortgage approval process, your lender will order the home appraisal, but they won’t pay for it. The appraisal fee is usually covered by the home buyer. It is common in some areas, for the seller to pay the appraisal fee. 

Are Home Inspections the Same Thing as Home Appraisals?

For first-time home buyers, it’s easy to confuse a home inspection with a home appraisal. Both of these occur before the home purchase is finalized and will give the buyer an open opportunity to back out or renegotiate if something major is found. However, they are different. 

During a home inspection, there is an in-depth look into the home’s plumbing, HVAC, foundation, and other systems,  not just the home’s value. The purpose of the inspection is to find any functional or structural issues with a home before the sale, to will allow buyers a chance to have the seller pay repairs or renegotiate the purchase price. A home appraisal is almost always required by lenders, where an inspection is optional (though highly recommended). 

What Does a Home Appraisal Cost?

It can cost around $350 for an appraisal on a single-family home, but the average price ranges from $300 to $430, according to HomeAdvisor. It’s important to keep in mind that these prices will vary depending on your location. In California, home appraisals can cost between $600 to $800. Other things like the time of year and the size of your property can result in the appraisal fees changing. If you are looking at a multifamily home, appraisals can cost nearly $1,500. 

You would be considered lucky to pay less than $300 for an appraisal and very unlucky to pay more than $450 for a single-family home. However, you could easily end up paying thousands if you want a detailed report of a large home that has complex issues.

Do Home Appraisals Help Buyers?

Home appraisals are seen as undesirable by many buyers. They are another charge that is added to a long list of closing costs. A low appraisal can also stop a deal from being finalized, and keep a buyer from their dream home. 

There is another way to look at home appraisals. They are a resource that can stop you from overpaying on a property. Why would you want to pay more than the fair market value on a home?

It’s also common for home buyers to renegotiate the purchase price if an appraisal comes back low. The savings can end up being more than the appraiser’s fee. If the appraisal comes back higher than the purchase price, it gives buyers more home equity and a great deal on the home. 

What Will an Appraiser Look At?

The Fannie Mae Uniform Residential Appraisal Report is used by many real estate appraisers to access the condition of a home. Below is a list of some things an appraiser might consider when comparing the home’s true value to the asking price:

  • Home Improvements: Any home renovations or upgrades for the property may be used to increase the value of your home. Improvements made outside of the home can be considered as well, like a renovated garage, pool, or landscaping. 
  • Nearby property values: An appraiser will compare comps in the nearby housing market. The appraiser will look at the sale price of other comps and the current property value to help determine the value of your home.
  • Living conditions of the home: The general condition of the property will be taken into consideration. The appraiser will count the number of bathrooms and bedrooms, look at the functionality of the floor plan, confirm the square footage, and look at the home’s amenities.

Once the evaluation is complete, the appraiser will issue a final valuation of the property in a report that they will submit to your mortgage lender.  

What Do Appraisers Include in the Appraisal Report?

A home appraisal report can include:

  • An overview of local housing market trends: It will show if the prices are rising or falling. If they are, how quickly?
  • Explanation of the valuation: Appraisers show their work so that you will understand how they came to the final value of your home.
  • Summary of the home’s characteristics: Any improvements that have been made and the condition and size of the home. 
  • Other considerations:  Did anything else about the home or neighborhood affect the valuation? 
  • Structural problems and defects: The appraiser will list any issues that they noticed. 

Keep in mind that home appraisers are not inspectors. You should not rely on their findings to determine if there are any structural problems. It’s not an appraiser’s job to look at or find any of these issues.

There are several ways that an appraiser will value your property. The comparable valuation is the most common, it will find a value by comparing the subject property to nearby comps. The replacement cost is the amount it would cost to replace the house on the same lot. A rental schedule will consider rental income when determining a value. 

During the Home Appraisal Process, What Do Sellers Provide?

The National Association of Realtors recommends that both sellers and real estate agents compile a package of documents to be made available to appraisers for inspection. The NAR also recommends the package contain copies of  the following:

  • Surveys
  • Detailed maps of neighboring plots
  • Covenants
  • Deeds
  • HOA documents 
  • Specifications
  • Floor plans
  • Inspection reports 
  • Neighborhood details 
  • Recent comp sale prices 
  • Detailed list of dates of home improvements, upgrades, costs, and any available invoices
  • Purchase agreement
  • Energy-efficient green features 

The appraisal can be more accurate with  more information that the seller and real estate agent provide. 

Home Appraisals Are Not Required for Cash Buyers

Home appraisals are not required for all real estate transactions. If you plan on buying your home with your own funds, you are not required to obtain a home appraisal. 

Professional developers also rarely bother with home appraisals, since they know as much as an appraiser would. It also doesn’t seem beneficial to get an appraisal on a home you plan to tear down and build a new one from scratch. The only thing you would need to know is the going rate for development land. 

An Appraisal Is Not Always Required to Refinance

It is typical for mortgage lends to require an appraisal when buying a home. There are times when lenders won’t insist on appraisals when refinancing. If you can put 20% down, most lenders won’t require an appraisal. 

It all comes down to what lender you use. There is a general rule that if the loan being refinanced is less than $250,000, you generally won’t need an appraisal. 

Using the FHA Streamline Refinance program allows homeowners with an FHA loan to refinance without an appraisal. You won’t need an appraisal with VA loans if you use the Interest Rate Reduction Refinance Loan (IRRL). 

It’s less likely that lenders will require appraisals for conventional mortgage loans if you want a “rate-and-term” refinance. You will pay closing costs out of your pocket and improve your mortgage terms without increasing the balance. If you put the refinance costs into a new loan, it’s called a “limited-cash-out” home loan. 

If your loan-to-value ratio (LTV) exceeds 80% or when you apply for a cash-out refinance, lenders are more likely to require an appraisal. 

Home Appraisal Day- Dos and Don’Ts

During the home appraisal, sellers and agents are allowed to attend. If they plan on attending the appraisal, they should only answer questions and provide information. It is illegal to try and influence the appraisal in any way. 

The appraiser is not allowed to say anything confidential. You are allowed to check the appraiser’s credentials and make sure they have the requisite local knowledge to reach a proper valuation. This can be important when an appraiser may take on a job without knowing the area. 

It’s a good idea to check that the office address isn’t in another county. You can always ask the lender to send someone else if you have any well-founded doubts about the appraiser’s knowledge or credentials. 

Keep in mind that these situations are rare. Most appraisers strive to give you a great service and a valuation that reflects a fair market value of the home. 

Home Appraisal FAQ

What Does a Home Appraisal Do?

Home appraisals help establish a fair market value of a home. The appraisal lets you and the lender know the agreed price of the property is fair. The appraisal also checks that the borrower is within loan-to-value guidelines. If the appraisal comes in low, the buyer may have to pay a larger down payment. In some states, home appraisals are used to calculate property taxes. 

Can Anything Fail a Home Appraisal?

A home appraisal will fail when the appraised value is less than the home purchase price. Many factors can fail a home appraisal, including bad comps, sluggish housing market conditions, and an appraiser that is not familiar with the local market. Blighted and messy homes can also fail an appraisal. Sellers are typically told to clean up their properties and make sure the home has a lot of curb appeal. 

Do Home Appraisals Take Long?

An in-person home appraisal usually takes a few hours to complete. Depending on the property and appraiser’s schedule, the whole process can take a few days or weeks longer. On top of visiting the property, the appraiser has to research the local market conditions, evaluate local property values, and look at recent comp sale prices. The appraiser also has to complete a written valuation report that they will then submit to your mortgage lender. 

What Happens After a Home Appraisal?

After an official appraisal is given, the home-buying process is back on track. The mortgage lender will then start the underwriting process for the loan, and once approved, the buyer will continue to the closing table. The buyer will submit a cashier’s check, or wire transfer, for the down payment and other closing costs. If the appraisal had any issues, the buyer and seller will have a chance to renegotiate or terminate the purchase agreement. 

Today’s Mortgage Rates

Home appraisals are great for first-time buyers and even experienced repeat borrowers. If you are thinking about refinancing your existing loan or buying, make sure to speak with several different lenders. Current mortgage rates are high, t so make sure you shop around for the best rate. 

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