• Home
  • Learn
  • What Is A Home Appraisal And How Much Does It Cost?
Man doing woodworking in his workshop.

What Is A Home Appraisal And How Much Does It Cost?

10-Minute Read
Published on December 7, 2021
Share:

Whether you’re buying a home or refinancing your mortgage, an appraisal is a significant step in the process. Read on to learn more about what an appraisal is, how it works, how much it costs and what to do after the results come in.

What Is An Appraisal?

An appraisal is the estimated value of a home determined by an inspection of the property and its comparison to recently sold homes in the area to estimate the value.

Before you complete the home buying, selling or refinancing process, it’s required that you first get a home valuation, the most common of which is an appraisal, where an estimate of the value of the home is calculated. The result of an assessment determines the amount a mortgage lender will let you borrow to purchase the property.

An appraisal answers the question, “how much is my house worth?” and protects the buyer from paying more than the home’s true value. In both a purchase and a refinance, it prevents the lender from giving the homeowner more money than the home is worth.

House Appraisal Vs. Home Inspection

While both occur before the home purchase, there are a few differences between an appraisal and an inspection.

For one, a home appraisal is required by the lender, while a home inspection is recommended but not mandatory. Because of this, you are responsible for finding a home inspector and scheduling the inspection. Meanwhile, the lender will schedule your appointment for you.

Another way in which the two differ is in their purposes. An official assessment determines the home’s value, while an inspection determines its condition. As a result of this, their processes are different.

In the most basic terms, a home inspection dives more into the functional parts of the home, using special equipment to find problems that the naked eye might not see. An appraisal does a more surface-level review of the home and involves research of recent sales for houses in the area. These properties are known as comparable homes or “real estate comps.”

While a certified inspector can seem like an unnecessary expense, it’s well worth the cost. A thorough home inspection can help save you money and give you time to assess and prepare for future renovations

Who Appraises The Home?

Appraisals must be conducted by a licensed, third-party appraiser who has no connection to the buyer, seller or lender. That way, all parties can be sure the determined market value is fair, unbiased and free of any influence from a party that could benefit.

Apply for a Mortgage with Quicken Loans®

Call our Home Loans Experts at (800) 251-9080 to begin your mortgage application, or apply online to review your loan options.

Start Your Application

Who Pays For The Appraisal?

Even though the mortgage lender is the one who schedules the appraisal, the potential buyers will have to pay the fee. This charge is usually due at the time of closing but you can pay it upfront, if desired.

How Much Does A Home Appraisal Cost?

Most appraisals cost $300 – $450, with the national average being around $400, according to Fixr. However, the cost depends on a few factors, including:

  • The size of the home
  • The type of home
  • The home’s location
  • The condition of the property
  • The amount of work and time required

These factors affect the amount of time, effort and work that goes into the appraisal, which is what ultimately influences the borrower’s sale price. For example, a larger home or multifamily property has more space to walk through and assess than the typical single-family home.

A home that has unique characteristics makes it difficult to find comps because those features often make the house one of a kind.

If the home is in a rural area with nothing around it, the appraiser may have difficulty finding any other properties in the area, let alone one that is similar. This situation may require deeper research, which takes more time.

How Long Does A Home Appraisal Take?

In general, the home appraisal process can take up to a week or more to go from the date of inspection to the final report.

Before the lender can order the appraisal on a new property, you must put an offer in on the home, have it accepted and sign a purchase agreement. After that, the valuation process can begin.

1. Your Lender Orders The Appraisal

This process starts with the lender ordering the appraisal. Once the appointment is requested, an appraiser will come to inspect the home.

2. An Appraiser Comes To The House

Depending on the type of loan you get, your appraiser will inspect certain parts of the home for specific reasons. They’ll examine the home to learn more about its features, to ensure things like heat and electrical are working properly and that there are no safety issues.

Certain loans, like FHA loans and VA loans, may have more specific appraisal criteria than others. Many of the issues they find during the examination must be resolved before the buyer moves in. We’ll discuss some of the appraisal criteria for different loans later in this article.

3. The Appraiser Creates A Report

Once the appraiser completes their inspection, they will review comps to calculate the fair market value of the home. The appraiser will create a report that contains a detailed description of the property, including its condition and its basic and unique features, plus the final number for the property’s value.

This report may also include general data on the market and the home’s location, other properties used as comps and information that supports the appraiser’s findings and final valuation. You will receive a copy of the report for your own records.

If the home is appraised at or above the purchase price, the loan will be processed as usual. If the home is appraised lower than the agreed-upon purchase price, more steps will need to be taken since the lender cannot lend more money than the home is worth.

4. Your Loan Terms Are Finalized

After the appraisal is done and the purchase price is officially set (either by continuing or in the process of renegotiating), the lender will finalize your loan terms. You’ll receive a Closing Disclosure that details your down payment and closing costs as well as the terms of your mortgage, and then you’ll close on your loan.

If this sounds like too much hassle, there may be a way to bypass the process altogether, but this doesn’t happen often. In some rare cases, usually when working with Freddie Mac or Fannie Mae, it’s possible to skip the appraisal process and use a waiver. It should be noted that there’s some additional flexibility along with safety precautions being taken due to COVID-19.

How Long Is A Home Appraisal Good For?

Generally, a home appraisal is good for a total of 120 days (4 months). If you do not close on your home within that time, you will need to have another assessment. Some people may be afforded an extension, but only in certain circumstances and only if they’re eligible. The exception is the VA, which has a 180-day timeline for most valuations except for IRRRLs (VA Streamlines), which have 4-month timelines.

An appraisal has a short lifespan because market conditions change. Home sales from 6 months ago might be drastically different from those in more recent months, especially if the real estate market is volatile.

What Do Home Appraisers Look For?

The appraiser’s job is to assign a total, fair market value to the property. In order to do this, they need to look for certain things that can affect the price or impact the lender’s decision to loan you money for the home. These tend to include:

  • Health and safety hazards
  • The structural integrity of the home
  • The condition of the home
  • Home improvements and upgrades that add value
  • Visible defects
  • Any conditions set by the lender

Appraisers can order any inspections they feel are necessary, such as a roof, pest or water inspection, if there are signs of potential issues.

If the appraisal or inspection finds any conditions that don’t meet the lender’s requirements, they’ll have to be corrected before you can move in.

Home Appraisal Checklist

Here are a few things the appraiser looks at when assessing the home:

  • Total land area or acreage of your property
  • Condition of the roof and foundation
  • Condition of the chimney
  • Condition and type of driveway surface
  • Home’s curb appeal
  • Type of garage
  • Home’s structural integrity
  • Amount of livable space
  • Working HVAC system
  • Type of basement or crawl space
  • Built-in appliance upgrades
  • Any lead or peeling paint, but only if the house was built prior to 1979
  • Quality of the electrical and plumbing
  • Evidence of termites or pests
  • Energy-efficient features

Keep in mind the appraiser will not consider moveable objects in their assessment. Anything that isn’t nailed down is considered personal property that you can take with you when you move. It isn’t considered a part of the home.

There are also certain rooms the appraiser may exclude from their measurement of livable space or bedroom count. For example, basements and garages are typically not included in the square footage of the home and a room must have a closet and window to be considered a bedroom.

Other Types Of Appraisals

Depending on the type of financing you are using for the purchase of the house, your lender may require certain criteria for the home appraisal.

For example, if you’re looking to get an FHA loan, some repairs must be completed prior to closing. This impacts both the buyer and the seller because the home loan process absolutely cannot progress until a few repair items are completed.

FHA home appraisals require repairs to peeling paint, water damage, holes in the roof, foundation issues and more to be completed before you can move forward with the loan process.

Like an FHA loan, home assessments for properties purchased with VA loans have their own standards for acceptable home conditions.

In addition to the standard, conditional loan requirements, VA home appraisals will require clean drinking water, a working sewage system, functioning electrical and water systems, pest inspection and appropriate living areas.

Any repairs, safety or health concerns will slow down and possibly put a halt to the home buying process until they are addressed by either the buyer or seller. The VA loan appraisal must be completed by a VA-certified appraiser, assigned by the Department of Veterans Affairs.

How To Prepare For Your Appraisal

In addition to checking the exterior and interior condition of the home, the appraiser will also look for anything needing repairs. Here are some areas to consider addressing before your appraisal:

  • Check your electric garage door opener to make sure it’s working.
  • Secure a handrail on steps or stairwells.
  • Secure second-floor doors with decks.
  • Secure a railing to any and all raised decks.
  • Ensure all utilities are functional with no safety issues.
  • Ensure water, electricity and air conditioning are functional.
  • Take care of any plumbing issues, roof leaks or stains.
  • Check for cracks in the walls, ceiling or foundation.
  • Check for water intrusion through the foundation.
  • Ensure your roof is sound and has at least 3 years of economic life remaining.

This is by no means a complete checklist of repairs that might need to be addressed before a home appraisal. It is, however, a list of the most common issues that may arise either before or during the inspection.

By addressing any repairs or upgrades before the appraisal inspection, you’ll be better equipped for a smooth home buying process and possibly a higher home value.

Understanding Appraisal Values

An appraisal can make or break a home sale. It can move you to the next step in the home buying process or take you back to the negotiation table.

Read on to learn what it means when you get a value that’s different than expected, and what to do.

What Happens When A Home Appraisal Comes Back Higher Than Expected?

When the appraisal comes back higher than expected, it greatly benefits the home buyer. That’s because they’ll be getting a good deal on the home and have more home equity.

For example, if the buyer and seller agree on a purchase price of $150,000 and the home is appraised for $165,000, the buyer still purchases the home for $150,000 and automatically moves in with at least $15,000 of equity in the home. And, since the lender will be loaning at or less than what the home is worth, the process can continue toward the closing table.

The seller will not be made aware that the home was appraised for higher than the asking price. That way, they can’t try to demand more money (which would be in breach of the purchase agreement) or back out of the deal to sell the home for more later.

The seller will only know the results of the home appraisal if it comes in lower than expected, because it could affect the sale of the home.

What Happens If The Home Appraisal Comes Back Low?

A low appraisal can prevent the loan from moving forward or slow down the process because the lender cannot give more money than the home is worth. This can be a problem if any of the parties involved are relying on mortgage financing.

If the appraisal comes back low, don’t panic just yet. You may have a few different options, whether you’re buying, selling or refinancing. You can always try to negotiate with the sellers, lower the asking price, pay for the difference out of pocket or even back out of the deal if you aren’t able to make the new fair market value work in your favor.

The Next Steps After An Appraisal

After your home appraisal is complete, the appraiser will assign a monetary value to the property based on the findings in the inspection and comparables in your area, and then send their findings to the mortgage lender.

Your loan amount will be based on the number that the appraiser assigns to the property, so if they say the home is worth $190,000, your lender will only loan that exact amount, minus any required down payment. This is unfortunate for the seller if they have the home listed at a higher price, as the lower home appraisal will affect their chances of getting that amount on the sale of their property.

However, if the home is appraised at or above the asking price, the loan will be processed and you will be able to begin closing on your home.

Home Affordability Calculator

Calculate the home price you can afford using your income and the amount of debt you have.

Calculate Now

The Bottom Line

Home appraisals are an important component of any real estate transaction for buyers, sellers and lenders alike. Whether you’re buying a new home, selling your property or refinancing your mortgage loan, it can be wise to familiarize yourself with what this specific process might include in order to be as prepared as possible for whatever comes next in your homeownership journey.

For more information about real estate valuations, read about how a home appraisal can affect your mortgage and selling price.

See What You Qualify For

Hanna Kielar

Hanna Kielar is an Associate Section Editor for Rocket Mortgage focused on personal finance, recruiting and personal loans. She has a B.A. in Professional Writing from Michigan State University.