Home Appraisal: Everything You Need To Know
Sean Bryant4-Minute Read
July 31, 2020
Buying a home is an exciting experience. However, there are a lot of steps involved in the purchase.
If you’re buying a house with a mortgage, refinancing your current mortgage or selling your home to a non-cash buyer, you’ll need to get an appraisal on your property.
A home appraisal is a crucial component of the sale of a home. In order to have a comprehensive understanding of this process, let’s take a closer look at what it entails.
What Is An Appraisal?
A home appraisal is an impartial evaluation of your home’s fair market value. Lenders hire a third-party service to conduct this evaluation during the mortgage lending process so they can determine if the buyer is requesting the appropriate mortgage amount.
The appraisal value will help lenders avoid the risk of lending more than they can recover if the borrower defaults on the loan.
What Do Home Appraisers Look For?
Each appraiser will have their own way of completing the process, but many look at the following:
- Lot and home size, curb appeal and exterior appearance
- Extra features that may add value to the property or upgrades/additions
- Overall quality of the home and construction
- Structural elements (not as detailed as a home inspector)
- If the property conforms to the neighborhood (for resale purposes)
- Other factors that may deter or subtract from the value of the home
After the collection of data, the appraiser will research the housing market and find comparable homes in the area that recently sold.
How Long Does An Appraisal Take?
How long the in-person inspection part of a home appraisal will take largely depends on the size of the home. If you have a small home, the appraiser might be able to complete the process in less than a half hour. For large homes, an appraiser may need a few hours.
How long the other parts of the process, including scheduling your appraisal and completing the final report, take depends on how busy your appraiser is. If you’re in the middle of peak buying season, you can bet your appraisal company is fielding an abundance of requests from lenders on behalf of hopeful home buyers like yourself.
Once the in-person part is completed, the appraiser will gather data on comparables, which are recently sold homes that are similar to the home being appraised. Then, based on all the information they’ve gathered, they’ll create a report detailing the home and the appraiser’s opinion of the home’s market value.
This process may take a few days to a week, but it could be longer, especially if it’s the busy season in your area.
What Home Buyers Need To Know
If you’re buying a home with a mortgage loan, the appraisal is one of the most important steps toward a successful home closing.
If the appraisal comes in at or above the purchase price agreed to in the contract, the sale can proceed as planned. If the appraisal comes in below that, however, the lender will adjust what it’s willing to give you. After all, the lender doesn’t want to lend more money than what the house is worth.
A low appraisal can put a snag in the home buying process, but it doesn’t have to derail it completely (more on that in a minute).
What Sellers Need To Know
When you’re selling your home, a low appraisal can mean you’ll have to accept less for your home than you originally anticipated.
When it comes to the appraisal, be prepared and proactive. Don’t expect the appraiser to know that you just installed a brand-new, top-of-the-line furnace.
Work with your agent to put together relevant documentation for the appraiser that could help you get a more accurate valuation.
What Refinancers Need To Know
Just as when you first purchased your home, your lender wants to know what your home is valued at when you go through a refinance transaction. The lender wants to make sure you have sufficient equity in your home and that you don’t owe more on the home than what it’s worth.
Refinancers should follow the same advice given to sellers: put your home’s best foot forward for the appraiser by tidying up and preparing documentation of any upgrades that could boost its value.
Tips For Getting A Higher Appraisal Value
When you’re selling or refinancing, you have a vested interest in making sure your home appraises as high as possible.
Though much of the appraisal will be based on hard data that you can’t do much to change – for example, the number of rooms in your home or the sold price of any comparables used – there are some things you can do to ensure that you’re presenting your home in the best light possible and making it easy for the appraiser to find information pertinent to your home’s current value.
Create a List Of Improvements
Before the appraiser arrives, make a list of every improvement you’ve made to the home. List out the work done and the date it was completed. If you can, include receipts and or any applicable permits.
Neighborhood comparables are a big consideration when appraising a home, but when you can show a long list of improvements, it’s likely to look favorable in the appraiser’s final numbers.
Keep in mind, though, that not every improvement is going to be worth something in the eyes of the appraiser, particularly if it only adds aesthetic value, or if it isn’t a permanent addition to the home. A fresh coat of paint isn’t in the same league as, say, a new heating and cooling system.
Explain The Comparables
The appraiser will be able to pull the basic information on the size and price of recently sold homes in your area. What they won’t do is actually enter each home to see the condition. Other than from photos they won’t know if the kitchen was in need of an upgrade or if the flooring was showing some wear and tear.
Before the appraiser arrives, make sure you’ve done your research on the properties that have sold in your area over the past 6 months. If a home sold for less than you’d like yours to appraise for, understand why.
Did it have structural issues or outdated bathrooms? This is the information you’ll want to share with your appraiser so they have a better understanding of why your home should be valued higher.
Spruce Up The Exterior
The outside of your home is the first thing the appraiser is going to see when they arrive. For the most part, the appraisal will involve looking beyond any window dressing, but having a tidy and attractive exterior makes a good first impression and shows the appraiser that you take good care of your home.
If the weather is nice, make sure the grass is nicely mowed, and have a few well-placed flowerpots to add some color. You can also put down a fresh layer of mulch to spruce things up.
Give The Appraiser Space
While you might want to follow the appraiser around to make sure they see everything that’s great about your home, smothering them can be a big red flag. It can make it seem like you have something you’re trying to hide.
Instead, when they arrive, you can give them an overview of the home, explain the improvements you’ve made, and talk about the neighborhood. Then let the appraiser do their job.
What To Do If The Appraisal Comes In Low
No matter what side of the transaction you’re on, a low appraisal can be disheartening. But don’t panic. Take stock of the situation and consider your options.
The buyer can use a low appraisal to negotiate a lower price with the seller. The seller may agree to sell for a lower price than what was originally agreed upon, or they may decide to try their luck back on the market.
How amenable a seller is to lowering the price will depend on different factors, including how eager they are to complete the sale, how likely they are to find a new buyer if they were to place the home back on the market and how much they’d have to lower the price.
Meet In The Middle
If the seller isn’t willing to lower their price, the buyer may offer to bring in their own funds to make up the difference. Or, the buyer and seller might agree to a compromise where the seller lowers the price a bit and the buyer brings in some extra cash.
If the buyer and seller can’t come to an agreement, they may choose to cancel the agreement.
If you believe the appraisal is incorrect or overlooked important factors, you may choose to dispute the appraisal report. However, be prepared to have some data to back up your rebuttal, and be realistic.
The Bottom Line
Whether you’re buying, selling or refinancing, you need to know the ins and outs of the appraisal process. You don’t need to fear the appraisal, but you do need to prepare for it.
Keep your house in good shape, have documentation on the home available for the appraiser and be ready to be flexible if the appraisal doesn’t come in as expected.
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