Home appraisals are often the scariest part of the mortgage underwriting process. Buyers fear losing their loan approval, and sellers worry the house won’t appraise high enough.

While home appraisals aren’t a way to stop home sales, they do protect everyone involved in the process, including buyers and lenders. All lenders require home appraisals on purchases and refinances. Many require them on home equity loans, too, just to ensure the home is worth enough money.

Here’s what to expect in the home appraisal process.

 

What is a Home Appraisal?

A home appraisal is a report written by a licensed appraiser who determines the home’s fair market value. The appraiser is an independent person not involved in the sale that can provide an objective home value.

The appraisal is a lengthy report that shows important house details, including room measurements, the home’s features, and condition. It also compares the home to other recently sold homes in the area to determine its fair market value.

 

What is the Purpose of a Home Appraisal?

Lenders need a home appraisal to determine if the property meets the loan and lender guidelines. For example, if you offer $300,000 for a home, but the appraiser determines it’s only worth $200,000, the lender won’t approve your financing request because there isn’t enough collateral for the loan.

While the home appraisal is mostly for lenders, it’s also a helpful tool for buyers and sellers. It ensures homes only sell for their fair market value to keep the real estate market fair for everyone.

Home appraisals can come in lower than expected, but buyers or sellers can request a ‘redo.’ Some lenders allow buyers to pay for a second appraisal if they feel the original wasn’t based on fair information or other homes in the area sold for more. So it’s not a one-and-done process, but it’s done to help everyone involved.

 

How Long Does a Home Appraisal Take?

The appraisal process can take up to two weeks from start to finish. The turnaround time depends on local demand and the appraiser’s workload. The process starts with the appraiser visiting the property’s interior and exterior. However, the appraiser must use this information along with information about comparable properties that sold recently to create the appraisal report.

If you’re on a tight schedule, ask about the turnaround time of the chosen appraiser. Be mindful of your contracted closing date to ensure you can meet the obligation.

 

What’s the Home Appraisal Process?

Every appraiser does things slightly differently, but here’s the basic home appraisal process:

• Buyers and sellers enter a sales contract: The first step is to have an executed sales contract. This occurs after buyers and sellers negotiate the sales price and all terms. The process begins when both parties sign the contract and the buyers submit it to the lender
• The lender orders an appraisal: With an executed sales contract, the lender will order an appraisal. Most lenders work with a specific appraiser. If you have one you prefer, you must ask the lender’s permission.
• Appraiser researches the property: Upon receiving the assignment, the appraiser will review any public documents regarding the property. This starts the process and gives him information about what to look for in the property.
• Appraisal looks at comparable properties: The appraiser will also look up public data about homes in the area that sold recently. They try to use homes of the same model and features sold within the last six months or less for the most accurate prices.
• The appraiser visits the property: Next, the appraiser visits the subject property in person. He will take measurements of the rooms, look at the home’s condition, and take pictures of the interior and exterior.
• Prepares report: The final step is for the appraiser to prepare the appraisal report. This written report includes all the details he found about the subject property and any comparables. He comes up with the property’s fair market value after evaluating how the property compares to the recently sold properties.

 

How Can Sellers Best Prepare for a Home Appraisal?

A lot rides on the appraisal, so here’s how sellers can best prepare for it to get the maximum value for the property.

 

Make Repairs

While a home appraisal isn’t a home inspection, appraisers ensure the basic functions work in the home. Make sure all plumbing, electric, HVAC, and other major systems work well. Check all faucets, pipes, light switches, vents, etc.

If there are any major issues, consider repairing them. This includes any cosmetic issues, such as holes in the drywall or other obvious issues.

 

Upgrade your Curb Appeal

The appraiser’s first impression of the property occurs when they come up the driveway. Consider upgrading the home’s curb appeal by caring for the lawn and landscaping. Add flowers, bushes, or anything that might ‘spruce up’ the front or back of the house, making it look well cared for.

 

Make Every Room Accessible

Don’t make an appraiser’s job tough by having clutter or making rooms inaccessible. That’s a red flag for appraisers. Instead, ensure there is easy access to each room, and nothing is in the way that makes measuring or taking pictures more challenging.

 

Document Recent Repairs or Upgrades

Provide receipts, pictures, and contracts for any work recently completed in the home. Upgrades are especially important as they can add to the home’s value, especially if the comparable sales didn’t have the same upgrades.

 

Leave the Appraiser to do His Job

When the appraiser is at the property, it’s best to let him explore and get the information needed for the appraisal. If there are areas of concern or you need to explain certain upgrades, you can interfere at that point, but overall, the appraiser must come up with a subjective value for the home.

 

How Much Does an Appraisal Cost?

The average home appraisal costs $313 – $432. The actual cost depends on where you live, the current demand, and the appraiser the lender likes to use. Typically, buyers pay the home appraisal cost, but you can negotiate the cost as seller-paid in the contract.

 

Why Buyers Should Care About the Appraisal

You might wonder why buyers would care about the home appraisal, but it’s also an important tool for them. Even though it’s an added expense for buyers, it provides reassurance that you’re investing in a home worth what you’re paying.

If you enter a home investment ‘upside down,’ owing more than it’s worth, it could take years to get your money back. The last thing you want is to invest more in a home than it’s worth because you won’t see a return on your investment until you catch back up, which could mean many years down the road.

If an appraisal value is lower than anticipated, you may want to reconsider the purchase. If it’s a small amount and you have the money to invest in the home, you can make up the difference, but if it’s large, it may not be a good investment.

 

Special Home Appraisal Considerations

Most home appraisals have the same requirements. However, some loan programs have unique requirements you should understand.

 

FHA Loans

FHA loans are among the loan programs that have special appraisal requirements. They have what they call ‘minimum property requirements’ that each home using FHA financing must meet. Some of the most common include:

• No termite infestation
• A roof with at least a few years of life left on it
• No peeling paint that could potentially contain lead
• No dampness or cracking in the foundation
• All working appliances
• Adequate rooms for all occupants

USDA and VA loans have similar requirements. The basic premise is the appraisal must show that the house is move-in ready and won’t need major repairs. Because they are government-backed, these programs want homes that buyers can live in comfortably without experiencing financial strain.

Some lenders also have specific requirements for appraisals to ensure they meet their guidelines. This is the case for lenders who hold loans on their books and offer special programs that aren’t conventional, FHA, VA, or USDA loans.

 

Final Thoughts

The home appraisal process is a big part of buying a home. The appraiser must provide a report that shows a value that’s at least equal to the sales price. A low appraisal doesn’t automatically kill a deal but can make things more challenging.

Consider the home appraisal as your safeguard so you don’t overpay for a house and only invest in those worth your money.