How Home Appraisals Impact Your Homebuying Journey

If you’ve found a home you want to purchase and have settled on the deal with the sellers, you’ll still need to get an appraisal before closing. Here’s what you need to know about what an appraisal is and how it affects your homebuying journey.

What Is a Home Appraisal?

Most mortgage loans require a real estate appraisal. A home appraisal determines the value of the property. A real estate appraiser usually physically looks at the interior and exterior of the property, although some loan programs only require a “drive-by” appraisal.

The appraiser also compares other recent home sales nearby to arrive at the valuation.

What Do Appraisers Use in Appraisals?

Building an appraisal is a complex undertaking, as many factors go into the final valuation. Some of them are:

  • Property condition

    A fully renovated or new property generally appraises for more than one needing updates. For example, an old HVAC unit, a bad roof and an outdated kitchen can bring an appraisal value down quite a bit.

  • Property location

    Hot neighborhoods and mountain or lake views will drive the price up. In some cases, being next to a busy intersection or close to a railroad track can bring the value down.

  • Property size

    The bigger a home or condo is, the more it typically appraises for. Appraisers usually value properties per square footage.

  • Number of bedrooms and bathrooms

    The more bedrooms in a home, the better. The same goes for bathrooms. If a home only has a single bathroom, the appraisal value may decrease.

  • Recent sales price of nearby homes

    These are referred to as recent “comps” and tell the appraiser how much buyers are willing to pay for a home in that area. Appraisers typically use three comps in an appraisal valuation.

  • Lot size

    A large, level lot is considered more valuable than a small, cramped yard. The appraiser will typically walk around the lot during the appraisal visit.

  • Property age

    Older homes tend to need more updates and repairs, which can decrease the appraised value. A newly built home or one that’s only a few years old may appraise higher than an older home (but not always).

How Long Does It Take to Get an Appraisal Back?

An appraisal is an in-depth report that can take a few days to several weeks to complete. Once the appraiser receives the order, they must make an appointment with the seller that fits both schedules. They must then do the appraisal inspection, compare what they find against market comps, and write up the report.

If an appraiser doesn’t have a full book of business, they may be able to finish an appraisal in less than a week. The “average” time to expect is two weeks. In busy real estate markets, or if the property is difficult to find comparable comps for, appraisals can take a month.

How Much Do Appraisals Cost?

Prices for appraisals vary widely, anywhere from $600 to over $1,600. The wide swing of prices hinges on the size and complexity of the property, the amount of land that comes with it, and the individual appraiser’s pricing structure.

The buyer is usually responsible for paying for the appraisal report unless the seller agreed to cover the cost during negotiations.

How Can Appraisals Impact Your Mortgage Loan?

Appraisals are critical elements of your homebuying process.

  • If the appraisal comes in high…

    Great news! Most of the time when an appraisal report values the property over the asking price, lenders see that as a low-risk loan. Buyers in this situation will most likely breeze into closing and secure their loan without issue (unless something besides the appraisal holds it up).

  • If the appraisal comes in low…

    This scenario can happen in hot real estate markets. Appraisal values below the sale price can derail the mortgage loan because lenders aren’t keen on loaning more for a property than it’s worth. The buyer would need to bring extra money to the table at closing to cover the difference. Or they could appeal the appraisal value or renegotiate with the seller.

Being educated on what an appraisal is and how it affects your ability to secure a mortgage is an important part of the homebuying process. Your lender can go into greater detail about your specific appraisal and its impact on your mortgage loan plans.