A home appraisal aims to provide an unbiased estimate of the fair market value of your home. An appraisal helps everyone involved in a real estate transaction make an informed decision, whether you are buying, selling or securing financing.
Learn more about home appraisals, the different types of appraisals, what a home appraiser looks for and how best to prepare for an appraisal.
Key Takeaways:
● A home appraisal is an independent real estate assessment of a property’s value, typically required by a lender to be approved for a mortgage.
● An appraiser determines a home’s value by combining an in-person property inspection with an analysis of comparable sales, market conditions and the home’s specific features.
● A home appraisal costs around $325 – $550, takes a couple of hours to complete and is paid for by the buyer upfront before closing.
What Is A Home Appraisal?
A home appraisal assesses the fair market value of a house to help the buyer and seller make a fair deal on it. Lenders require a home appraisal to ensure they aren’t lending more than the house is actually worth—and it can also help them determine your interest rate, required down payment and whether you’ll be approved for the home loan.
A home appraiser is an independent, licensed real estate professional who assesses things like the location, property condition, amenities, curb appeal and recent home sale prices in the area. A home appraisal is different from a home inspection, which is a visual assessment of a home’s condition in terms of plumbing, electrical, structural or other physical issues or repairs needed.
Typically, the lender orders the appraisal, and the borrower (the home buyer) pays for it as part of the mortgage process. A home appraisal usually happens after the buyer and seller agree on a purchase price and sign a purchase agreement. A lender must provide you with a copy of the appraisal report no later than three days before closing, but you can generally expect to receive it in about one to two weeks .
An inaccurate report can seriously impact how much you pay for a property. If the estimate of the home’s value is too high, you could end up overpaying for the property, and if the estimated value is too low, you could end up with less equity in your home over time. Read your report carefully and do your research. Collect some supporting data and contact your lender for a new evaluation if you think the house was unfairly appraised.
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Who Pays For The Home Appraisal?
Wondering who pays for a home appraisal? It’s usually the buyer!
Most mortgage lenders arrange and schedule the appraisal, and the home buyer usually covers all the fees upfront , rather than rolling them into the closing costs. A home buyer can negotiate for the seller to pay for the appraisal as a concession, but this is uncommon unless the seller wants to sweeten the deal to sell the home.
Depending on your location and property type, a home appraisal for a single-family home can cost anywhere from $350 – $500. The assessment of a multifamily property usually costs around $1,000, while an appraisal for an apartment building can cost $3,000 or more due to its overall size and complexity.
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What Are The Most Common Types Of Real Estate Appraisals?
The type of home appraisal you’ll need will vary depending on your circumstances and your lender. The most common is a full appraisal, which requires an appraiser to inspect a property in person. New technologies have helped streamline the process overall, reducing its cost and speeding it up.
Here are some of the most common types of home appraisals:
● Full home appraisal: This is an in-person, in-depth property assessment by a professional appraiser. The appraiser visits a home to take photos and measurements, reviews relevant public records and analyzes comparable home sales in the area.
● Drive-by appraisal: This is also called a summary appraisal. With this type of appraisal, a drive-by appraiser examines a home only from the outside to determine its value, relying heavily on public records or other data to estimate the home’s market value.
● Hybrid appraisal: This approach uses a third party , such as a real estate agent, to inspect the property. The information is then given to a licensed appraiser, who compares it with other data.
● Desktop appraisal: A desktop appraisal is similar to a hybrid appraisal, except a third party doesn’t visit the home. Instead, the appraiser uses property records, floor plans and real estate comps to estimate the home’s value.
● Rental property appraisal: This is similar to a home appraisal, except that the appraiser examines a property’s income-generating potential, including rental income and occupancy rates.
● Broker price opinion (BPO): A BPO is similar to a comparative market analysis (CMA) and is a method that real estate agents or brokers use to estimate a property’s probable sale price .
● Refinance appraisal: Getting your home appraised for a refinance differs from getting it appraised for a purchase since you own the home. You can attend the appraisal to point out any upgrades or renovations you’ve made.
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What Do Home Appraisers Look For?
The appraiser’s job is to assign a property a fair market value, not to uncover minor issues or potential repairs in the home. A property’s location and how it compares to similar, recently sold homes in the area are crucial for an appraisal.
So, what exactly does a home appraiser look for? Here’s a detailed list of most of what else you can expect an appraiser to take into account:
● Location and comparable home values: The appraiser considers the quality of the neighborhood and how a home compares to recently sold homes nearby.
● Size of the home and lot: A larger home or lot typically increases value, especially if it includes more bedrooms and bathrooms.
● Age, condition, and finishing details: Features like hardwood floors, granite countertops or a finished basement can raise a home’s value if they are in good condition.
● Curb appeal: A well-maintained exterior, including landscaping and fresh paint, makes a good first impression and can positively impact an appraisal.
● Overall condition of the house: Visible damage or structural issues, such as cracks in the foundation, can lower a home’s appraised value.
● HVAC, plumbing, and electrical systems: New or well-maintained systems and appliances signal that a home has been cared for, which can increase its value.
● Signs of termites or pest problems: Evidence of infestations can raise concerns for future damage and reduce a home’s value.
● Notable improvements or upgrades: When done well, renovations like a remodeled kitchen, new roof, or added pool can boost a home’s appraised value.
When signs point to potential issues, an appraiser can also order any necessary inspections, usually roof, pest or plumbing. If the appraisal or an appraiser-ordered inspection uncovers conditions that don’t meet the lender’s requirements, they may need to be repaired before the lender can approve the mortgage.
What Can The Seller Do To Prepare For An Appraisal?
If you are the seller, there are a few easy things you can do to prepare for a home appraisal. First, review your previous appraisal to get a baseline idea of your home’s worth. Next, you’ll want to complete minor repairs and tidy up the yard to boost the curb appeal. Clean and clutter-free rooms can also make a house look well kept and more spacious.
Remember to move any furniture blocking doorways and fix any other safety hazards. Lastly, document any upgrades or renovations you’ve done since you purchased the house. If you really want to boost your home’s value, consider spending the time and money it takes to invest in some meaningful home improvements.
What If The Appraised Value Of A Home Is Lower Than Expected?
A home appraisal coming back higher than expected is good news for the home buyer. Not only are you getting a good deal on the home, but you’re also building more home equity from the start.
In these instances, the seller benefits from the home appraising for more than the asking price because it allows the sale to move forward quickly and smoothly.
But a low appraisal can delay or derail a home purchase. Since lenders won’t lend more money than a home is worth, a low appraisal presents challenges for a buyer relying on mortgage financing.
Whether buying or selling, you may have options when the home’s appraised value is lower than the sale price. Be sure to get a copy of the appraisal from the lender, and then consider the following options for dealing with a low appraisal:
● Renegotiate the home sale price: Use the appraisal as evidence that the asking price exceeds the home’s market value, and request a price reduction from the seller.
● Pay the difference in cash: Since lenders typically won’t finance more than the appraised value, you can cover the appraisal gap with a larger down payment.
● Back out of the deal: If permitted by your purchase agreement or you have an appraisal contingency, you may be able to cancel the sale. While there could be a cancellation fee, paying it might be better than overpaying for the home.
● Appeal the appraisal: If you believe the appraisal is inaccurate or biased, contact your lender to request a review, or a reconsideration of value (ROV) To strengthen your case, gather supporting information such as the correct lot size, square footage or comparable home sales.
FAQ About Home Appraisals
Whether you’re a first-time home buyer or a homeowner, a home appraisal is a crucial step in the mortgage process. Let’s take a look at some frequently asked questions about home appraisals.
The Bottom Line: Home Appraisals Help Home Buyers And Lenders
More From Quicken Loans
A home appraisal is essential for any real estate transaction for lenders, sellers and buyers financing their home purchase with a mortgage. An accurate home appraisal helps sellers by providing an objective estimate of a home’s market value and can help validate the asking price. An appraisal also helps buyers ensure they’re not overpaying for a house!
Lenders require a home appraisal to confirm that the property value aligns with the home loan amount. Check your appraisal report before you close to make sure it meets your expectations. If you think you’ve been affected by lending discrimination in the home appraisal process, you can file a complaint with the Consumer Financial Protection Bureau. If you feel ready to move forward in the home buying process, Quicken Loans can help you .
Ben Shapiro
Ben Shapiro is an award-winning financial analyst with nearly a decade of experience working in corporate finance in big banks, small-to-medium-size businesses, and mortgage finance. His expertise includes strategic application of macroeconomic analysis, financial data analysis, financial forecasting and strategic scenario planning. For the past four years, he has focused on the mortgage industry, applying economics to forecasting and strategic decision-making at Quicken Loans. Ben earned a bachelor’s degree in business with a minor in economics from California State University, Northridge, graduating cum laude and with honors. He also served as an officer in an allied military for five years, responsible for the welfare of 300 soldiers and eight direct reports before age 25.
