Home Appraisals: Understanding the Basics

Understanding how home appraisals work may not be on everyone’s list of burning questions, but if you’re buying, selling, or refinancing a house, it should be at the top of your mind. There’s a whole host of questions that come with this process: what to expect, costs involved, and what’s in the appraisal report. We’re here to demystify the home appraisal process and address common queries to ensure your mortgage process goes smoothly.

Is a Home Appraisal Different from a Home Inspection?

Home appraisal allows an unbiased appraiser to determine the fair market value for a home, distinct from its tax value. It considers specific interior and exterior aspects, real estate market trends, and recent sales in the area. Appraisals are essential in buyer-seller transactions (purchase-money mortgages) and nearly always required for mortgage refinancing.

Mortgage lenders use appraisals to ensure they don’t lend more than the home’s worth, using the appraised value and loan-to-value ratios to determine lending amounts. An appraisal benefits buyers by confirming the home’s value matches the purchase price, offering negotiation leverage. For sellers, it helps in pricing the home accurately.

In cash transactions without lenders, buyers may still opt for an independent appraisal to verify the home’s value.

Home Appraisal Costs: Who Pays for It and How Much Does It Cost?

No, these are distinct processes with different focuses. A home inspection assesses a home’s condition for necessary repairs before purchase, while an appraisal determines its market value for lenders.

How much does a home appraisal cost? Who pays for it?

Appraisal costs typically range from $300 to $400, varying by location. Urban areas or rural regions with fewer appraisers may incur higher fees. The lender orders the appraisal and then the buyer pays for it, typically at closing.

When Does a Home Appraisal Occur, and How Long is the Report Valid?

Appraisals occur during loan closing, soon after the purchase contract or at a refinance lender’s request. The appraisal process takes a few weeks, with the actual inspection lasting about 30-45 minutes. Conventional, FHA, and USDA loans consider appraisals valid for up to 120 days; VA loans extend to 180 days.

Who Performs the Home Appraisal, and Can I Choose My Own Appraiser?

Under Fannie Mae’s Appraisal Independence Requirements (AIR), appraisals must be unbiased and ordered following specific guidelines. Buyers cannot select their appraiser but need a certified, neutral third-party licensed in the home’s state. Buyers must be present during the appraisal to grant interior access.

Are there alternative appraisal types?

Lenders may offer hybrid, desktop, or drive-by appraisals, leveraging technology and safety measures, especially during COVID-19. These are considered remote appraisals.

Hybrid appraisals use third-party materials like home inspection photos or videos. Desktop appraisals rely on online property records and local market data. Drive-by appraisals, allowed by FHA and VA for refinances, assess the exterior supplemented by online research.

What Do Appraisers Assess During the Home Appraisal Visit?

Appraisers evaluate the home’s overall condition, lot size, significant upgrades, and various factors like:

• Number of bedrooms, bathrooms, windows, and closets
• Floor plan details and square footage
• Amenities such as fireplaces, decks, and eco-friendly features
• Safety features like HVAC functionality, smoke detectors, and stairway handrails
• Upgrades like finished basements, remodeled kitchens or bathrooms, or pool additions
• Visual inspections of both interior and exterior
• Structural integrity including roof quality, garage, siding, foundation, etc.
• Signs of water damage or termite infestation
• General habitability
• What’s in the appraisal report and do I get a copy?

Appraisal Report Details: What’s Included, and Do I Get a Copy?

Post-appraisal completion, appraisers generate a formal report detailing the home’s fair market value. Buyers receive a free copy at least three days before loan closure, with lenders receiving a duplicate. The report includes property condition details, maps, photographs, market valuation data, and comparisons with similar homes. New construction appraisals consider existing area homes and building plans.

Low Home Appraisal Value: Can I Dispute It and What Are My Options?

• A low appraisal value, below the purchase price, may prompt buyer-seller negotiation adjustments. Buyers can challenge an appraisal, but success typically hinges on missing comparable properties or appraisal inaccuracies. Low appraisals affect refinancing terms, influencing loan-to-value ratios and potentially necessitating Private Mortgage Insurance (PMI).

Tax Assessment vs. Appraised Value: Understanding the Differences

Tax assessed values and appraised values serve different purposes, with tax values used for property taxation based on local government assessment methods. Discrepancies can impact monthly payments, especially with new construction lacking tax history. Appraisals can support appeals against tax assessments.

Preparing for a Home Appraisal: Tips and Recommendations

The appraisal process can differ depending on whether you’re the buyer, the seller, or you’re refinancing. If you’re the home buyer, it’s wise to keep an eye on local home values and to connect with a qualified real estate agent who can guide you through the process. As the seller or refinancer, here are some tips to prepare:

• Ensure cleanliness, declutter, and perform basic upkeep
• Address necessary repairs, particularly safety concerns
• Maximize interior appeal with furniture arrangement, natural light, mirrors, and artificial lighting
• Enhance curb appeal through landscaping
• Attend the appraisal, providing a list of home improvements