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

Whether you’re buying a home or refinancing your mortgage, it’s likely that a home appraisal will play a significant role in the process. Understanding how much a property is worth is essential to making decisions that will set you up for financial success.

Read on to learn more about what a home appraisal is, the process of getting one, how much a home appraisal costs and what happens once you complete the appraisal process.

What Is A Home Appraisal?

A home appraisal is a common type of valuation in which a real estate appraiser determines the fair market value of a house. A home appraisal provides unbiased insight into a property’s estimated worth by comparing it to recently sold homes in the same area.

Appraisals answer the question, “how much is my house worth?” They protect both the lender and buyer – lenders avoid the risk of lending more money than the house is worth, and buyers can avoid paying more than the home’s true value.

Here are some of the things appraisers will assess and consider during a home appraisal:

• Overall condition of a home
• Home’s age and location
• Any upgrades made to increase value
• Average values of similar homes in the area

How Much Does A Home Appraisal Cost?

Generally speaking, a home appraisal for single-family homes may cost $300 – $400. Multifamily units tend to take longer to assess due to their square footage, putting their appraisal costs closer to $600. But it’s important to remember that the cost of a home appraisal varies widely based on numerous factors:

• Size
• Land / property’s size
• Type of home
• Location
• Condition of the property

These factors all affect the time, effort, and work that goes into the appraiser’s assessment. For example, an appraisal in a rural area will likely charge more.

There are other factors that can affect the amount of time it takes to appraise a home. The size of the property can be a major factor since the appraiser needs to identify property lines. Scarcity of appraisers and a larger home can also increase the price of a home appraisal.

Depending on all of these factors, an appraisal could wind up being as low as $600 or as high as $2,000, in some cases. If you have more questions on the cost of a home appraisal, consider consulting with your mortgage lender.

Who Pays For The Appraisal? 

The potential home buyers are usually responsible for covering appraisal fees, even though most mortgage lenders will arrange and schedule the actual appraisal. The cost of an appraisal is usually due at the time of closing, but buyers can typically choose to pay the fee upfront. 

Depending on the market and the home itself, a buyer may be able to request that the seller pays for the appraisal during negotiations. However, this is rare and typically only done by a home seller as a way to sweeten the deal before closing. 

Common Types Of Home Appraisals

Depending on your circumstances and your lender, the type of home appraisal you’re required to get can vary. Advanced technology means there are more appraisal options than ever, reducing costs and making the appraisal process faster.

Here are some of the most common types of home appraisals.

Drive-By Appraisal

In a drive-by appraisal (also called a summary appraisal), rather than inspecting an entire property, an appraiser will only examine a home’s exterior to determine its value. It’s likely the appraiser will rely heavily on public records or other data points to estimate a home’s market value.

The Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA) both allow drive-by appraisals for most refinances, and even some home purchases in light of the COVID-19 pandemic.

Hybrid Appraisal

Hybrid appraisals allow appraisers to complete their assessment without ever physically visiting a house. A third party, typically an appraiser or a real estate agent, completes an in-person inspection. This information is added to the appraiser’s own research from public records, the MLS (multiple listing service) and other resources to determine the home’s market value.

Desktop Appraisal

Increasingly popular, desktop appraisals are similar to a hybrid appraisal, except a third party doesn’t visit the home in person. Property records, floor plans and comparable houses are usually utilized by appraisers conducting a desktop appraisal. Rocket Mortgage^® doesn’t offer desktop appraisals at this time.

Full Home Appraisal

A full appraisal is what we typically think of when we think of home appraisals – the traditional, in-person assessment where an appraiser visits and takes photos and measurements.

Who Pays The Home Appraisal Cost?

The potential home buyers are usually responsible for covering appraisal fees, even though most mortgage lenders will arrange and schedule the house appraisal. The cost of an appraisal is usually due with the closing costs, but buyers can typically choose to pay the fee upfront.

In a buyer’s market or because of the home itself, a home buyer can request that the seller pays for the appraisal during negotiations. However, this is rare and typically only done by a home seller as a way to sweeten the deal before closing.

What Do Home Appraisers Look For?

The appraiser’s job is to assign a total, fair market value to a property versus searching for smaller or potential repair problems.

Here are some of the things that an appraiser will look for during a home appraisal assessment:

• Health and safety hazards
• The structural integrity of the home
• The home’s condition
• Visible defects
• Notable improvements or upgrades that add value to the home
• Any conditions specified by the lender

Appraisers can also order any inspections they feel are necessary. This usually includes roof, pest, or water inspections, when there are notable signs pointing to potential issues. If the appraisal or inspection finds any conditions that don’t meet the lender’s requirements, they’ll need to be corrected before the buyer can move in.

What A House Appraisal Means For Your Home Purchase

A home appraisal is a pivotal point in the home buying process. The valuation from an appraisal tells lenders the amount of your mortgage loan. Banks and mortgage lenders won’t issue loans for more than the appraised value of a home.

Let’s explore the two different outcomes of an appraisal – a value higher or lower than expected – and what this can mean for buyers.

The Value Is Higher Than Expected

A home appraisal coming back higher than expected is great news for the home buyer. Not only will they be getting a good deal on the home, but they’ll also have more home equity.

For example, let’s say the buyer and seller agreed on a purchase price of $150,000 and the home was just appraised for $165,000. The buyer will still purchase the home for $150,000, but now they get to move in with at least $15,000 of equity in the home. The lender will be loaning only what the home is worth, and the process can continue toward the closing table.

In these instances, the seller is not told that the home was appraised for higher than the asking price. This 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 Value Is Lower Than Expected

At worst, a low appraisal can prevent a loan from moving forward for the buyer. At best, a low appraisal will slow down the home buying process. Since lenders cannot give more money than a home is worth, a low appraisal presents challenges for buyers who are relying on mortgage financing.

But don’t panic just yet. When the appraised value is lower than you expected, you may still have options, whether you’re buying, selling or refinancing. Here are some options for dealing with a low home valuation:

• Negotiate the price of the home with the seller
• Pay the difference out of pocket
• Back out of the deal

How Long Does An Appraisal Last?

Since appraisal valuations are based on ever-changing market conditions – and the condition of the property at the time of the appraisal – home appraisals don’t last forever. Most home appraisals are good for 120 days (4 months), FHA loans and most VA loans allow 180 days (6 months). If you don’t close on your home within that time, you’ll need another home appraisal.

Appraisals have short lifespans because market conditions change. Home sales from 6 months ago may be drastically different from recent sales, especially if the real estate market is volatile. You may be given an extension on your appraisal, though it’s pretty rare and only allowed under very particular circumstances for eligible borrowers.

FAQ About Home Appraisals 

Home appraisals are important whether you’re a first-time home buyer or real estate investor. Let’s take a look at some of the most frequently asked questions about home appraisals.

What’s the difference between a home appraisal and a home inspection?

The main difference is that home appraisals are required by lenders while home inspections are recommended, but not mandatory. Since they aren’t required, the home buyer is responsible for arranging and scheduling a home inspection, whereas the lender typically arranges everything for a home appraisal. Additionally, home appraisals determine a home’s value, while home inspections determine a home’s condition.

How can buyers prepare for an appraisal?

Buyers can’t do much to prepare for an appraisal. Appraisers will be assessing the condition of a home – and this includes keeping an eye out for anything in clear need of repair.

How can sellers prepare for an appraisal?

When selling your home, you want your home to appraise for the same amount or more than what the buyer has agreed to pay. Some things you can do to prepare for an appraisal are to provide a list of upgrades you’ve made to the home that add value and make a list of offers made on the house – if you’ve received more than one. Consider decluttering, tidying your home’s exterior to increase curb appeal and crating your pets during the appraisal.

Can sellers be present for an appraisal?

Yes – and it’s recommended. As the seller, you’re allowed to be present when an appraiser conducts their walkthrough and accompanying them gives you the chance to point out any upgrades, improvements or unique features.

How can I lower my home appraisal cost?

Home buyers cannot shop around for a lower home appraisal cost. There are regulations in place that make it impossible for both lenders and buyers to choose an individual appraiser or to choose one based on price alone.

The Bottom Line: Home Appraisals Help Home Buyers And Lenders

Home appraisals are an essential component of any real estate transaction for buyers, sellers and lenders alike. And for home buyers planning to finance their home purchase with a mortgage, home appraisal is a pivotal step in the homeownership journey. Knowing the home’s value can impact not only a property’s sale price but your loan amount.

If you’re a potential home buyer looking to take the next steps, get in touch to start the mortgage application process today.