Home Appraisals - Everything You Need to Know

Fun fact: Home appraisals are one of the most common real estate steps that delay closings. So it’s a good idea to know as much as you can about them before you prepare to buy or sell a home.

Home appraisals are designed to verify the true value of a home. A licensed appraiser will be in charge of the process and is typically hired by a mortgage lender prior to releasing funds for a loan. 

It’s particularly important for sellers to prepare for the home appraisal process as this can ensure the process goes smoothly and the transaction is completed as quickly as possible.

Below, the team at Prevu Real Estate will break down the essential things buyers and sellers need to know about home appraisals, including what they are, how long they take, and what can affect them.

Preparing for a home appraisal

• What is a home appraisal?
• How to get an appraisal
• Factors that can affect a home appraisal
• How much does an appraisal cost?
• How long does an appraisal take?
• Tips for buyers ahead of a home appraisal
• Tips for sellers ahead of a home appraisal

What is a home appraisal?

Simply put, a home appraisal is a certified estimate of the fair market value of a home. 

It is performed by a professional, licensed appraiser who conducts a thorough inspection of the property. The aim is to protect the lender's investment since, after all, the home is collateral for the mortgage. If a borrower fails to repay the loan, the lender must be assured that the property will sell for an amount that covers the outstanding loan balance.

The home's size, condition, location, additions or renovations, and the sale prices of comparable homes in the neighborhood can all contribute to the final appraisal amount. 

The lender orders the appraisal as part of the mortgage application process. If the appraisal value comes in lower than the sale price, it could jeopardize the loan unless the buyer can make up the difference or negotiate a lower price with the seller. Conversely, if the appraisal comes in higher, it can potentially serve as a bargaining chip for the buyer in price negotiations.

How to get an appraisal

A home appraisal isn't a task you can simply check off a to-do list. 

In most instances, your mortgage lender will arrange for the appraisal as part of the loan underwriting process and will be in charge of choosing a licensed appraiser.

The buyer will typically be responsible for the appraisal fee, which is usually included in the closing costs and is a common buyer expense. 

If you're a seller, you might also need an appraisal. In this case, you can hire a licensed appraiser independently. Your real estate agent will be your best guide here, as they can sometimes suggest appraisers they may have worked with or point you to contacts that can recommend someone.

Once a real estate appraiser is chosen, they will visit the home and conduct a thorough examination, which can include inspecting the interior and exterior of the property, evaluating the home's condition, and noting any improvements or damages. The result will be a detailed appraisal report with the estimated value of the property.

Factors that can affect a home appraisal

Home appraisals can be complex, with many factors contributing to the final estimated value of a home. 

The home's location is arguably one of the most significant ones. This includes not just the town or city but the specific neighborhood, its proximity to amenities, and the overall desirability of the area. Even a home's position on a particular street can make a difference; a house with a waterfront view or one close to public transportation may have a higher value.

The condition of the property is also vital and considers the structural condition, age, layout, and any improvements or renovations of the home. High-end finishes, modern appliances, energy-efficient systems, and updated components such as roofs and HVAC systems can help boost the final appraisal amount.

A home's total square footage, the size of the rooms, and the number of bedrooms and bathrooms can also affect the appraisal.

Other critical factors include sales price history of comparable properties, which shows recent sales of similar properties in the same neighborhood and market conditions. 

If the local real estate market is hot, and homes sell above the asking price, it could influence the appraised value. Conversely, a sluggish market may push the appraised value down.

How much does an appraisal cost?

Home appraisal costs vary depending on the state and the local market, but homebuyers can typically expect to pay between $300 and $600 for a professional home appraisal.

It’s common for this expense to be included in the overall closing costs of a home purchase and is usually paid for by the buyer. That being said, there are circumstances where sellers opt to have their property appraised before it hits the market, in which case the expense may be theirs.

If you have the opportunity to hire an appraiser yourself, it's worthwhile to invest in a skilled professional. An appraisal is an integral part of the home-buying process and can have a significant impact on the final sale price of a home.

How long does an appraisal take?

In most cases, the appraiser’s visit to the property typically takes anywhere from a few hours to a full day. 

After the appraiser has evaluated the home, they will need to complete a report and provide an estimated value for the property. This report can take a few days to a week to complete.

Remember that the appraisal is often one of the last steps in the home-buying process. The lender will want to ensure the home's value justifies the loan amount before they approve the mortgage. As a result, any delays in the appraisal process can postpone the closing date.

Tips for buyers ahead of a home appraisal

• Do your research: Consider researching recent sales of similar homes in the area. It’s always a good idea to know the overall price point of homes in your neighborhood of choice so you don’t get surprised by the appraisal amount.
• Ask questions: Don't hesitate to ask your lender or real estate agent any questions about the appraisal process and what the appraiser will actually check. There isn’t such a thing as too many questions, especially if it concerns the value of your potential future home.
• Prepare for the outcome: If the appraisal comes in lower than expected, you may need to negotiate with the seller or find additional funds to bridge the gap depending on your financing contingency. You don’t want to be caught short-handed in the final stages of a home purchase or be forced to evoke your contingency to walk away from a deal.

Tips for sellers ahead of a home appraisal

• Enhance curb appeal: First impressions count. Tidy up the exterior of your property to give a positive first impression to the appraiser.
• Address repairs: The better the home's condition, the higher the chance of a favorable appraisal. Fix any outstanding issues or damage that could lower the home's value and consider some renovations that fit your budget.
• Highlight home improvements: List any improvements or renovations to show the appraiser. This could include a new roof, updated appliances, or the dates of renovated kitchen or bathrooms.
• Clean up: While an appraiser won't assess your décor, a clean, well-presented home can help create a favorable impression and show that your home is in good condition.