Whether you’re buying, selling, or refinancing a home, you’re probably going to need a home appraisal. The appraisal plays an important role in establishing a property’s market value, which affects everything from setting a sale price or getting financing approved, to how much you can borrow with a cash-out refinance.
Here’s what you need to know about home appraisals, how to get a home appraisal, and what to expect from the results:
- What Is a Home Appraisal?
- Reasons To Get a Home Appraisal
- Who Conducts an Appraisal?
- Preparing For an Appraisal
- What an Appraiser Looks For
- How Appraisals Are Calculated
- How Long Do Appraisals Take?
- Understanding the Results of an Appraisal
- Home Appraisal FAQ
- The Bottom Line on Home Appraisals
A home appraisal is a written report from a licensed home appraiser. The report summarizes a property’s key features, such as its size, location, condition, and amenities. It also offers an opinion as to what the property could sell for on the open market.
So, how does a home appraisal work? The estimated value is based on the property itself and factors such as proximity to schools, transportation, parks, and medical care. It also considers recent sales of comparable homes nearby — usually called “comps” — as indicators of current market conditions.
There are three types of home appraisals, and which type you need depends on the reason for the appraisal:
- Full appraisal: A full appraisal is an interior and exterior inspection and report, typically used when a home is being bought, sold, or refinanced. The appraiser will research comps and factor in public and private data to estimate the value of the home. This is the most comprehensive and common type of appraisal.
- Exterior-only appraisal: As the name implies, this type of appraisal involves inspecting only the outside of a property. Appraisers still consider comps, as well as public and private data. Exterior-only appraisals typically are used when homeowners are seeking a home equity loan or line of credit. Also known as a drive-by appraisal, this type has become more common during the COVID-19 pandemic as a way to reduce the potential of the virus spreading during an in-home inspection.
- Rental analysis: A rental analysis is an addendum to an existing home appraisal, and is created for investment properties that will be rented out. This report considers the property’s structure and location to determine fair market rent.
It’s important to know what a home is worth when you’re buying, selling, or refinancing:
- If you’re buying a home, your lender likely will use the appraisal to decide how much it will lend to you. It also allows prospective buyers to make an informed decision on whether to buy at all.
- If you’re selling a home, a home appraisal will estimate a fair price for your home in current market conditions.
- When you’re refinancing a home, your lender may require you to update your house appraisal. This is important if you’re looking to establish how much equity you have in your home. Equity is the difference between the value of your home and how much you owe on it, and affects how much you could borrow with a cash-out refinance. It also may result in or remove the need to pay for private mortgage insurance.
Additionally, a new home appraisal may be important if you need to assess a property for tax purposes, or determine the value of your assets for estate planning or as part of a divorce settlement.
A home appraisal is conducted by an independent appraiser. In addition to following federal requirements, appraisers typically are required to be licensed or certified in the state where the property they’re inspecting is located. Appraisers may hold additional credentials from — or be members of — a professional organization, such as the Appraisal Institute.
If you’re buying or refinancing, your lender will order the appraisal and choose the appraiser.
One exception to this is if you want your own appraisal prior to refinancing or selling. This can help you gauge how much your home is worth, and how much equity you have in your home.
You also may want to hire your own appraiser if you disagree with the results of the appraisal that your lender ordered.
If you’re a seller, you don’t need an appraisal for lending purposes. However, if you want to know how much your home is worth before putting it on the market, you can order your own report.
When choosing an appraiser, you can start with the online directories and search tools offered by the U.S. Department of Housing and Urban Development, or the licensing authorities in your state.
Expect your cost for an appraisal to be determined by the specifics of your property, and the time required to research and write the report.
“The cost of your appraisal will depend upon the relative complexity and uniqueness of your property,” says Patrick Brown, chief appraiser at Valutrust Solutions, which provides national appraisal management services, in Overland Park, Kansas.
For instance, you can typically expect to pay less for an exterior-only appraisal. And the larger or more complex your home is, the more a report may cost.
“Typical fees for a noncomplex property … will range from $350 to $750, depending on geographic location,” Brown says. “Complex properties can command fees greater than $1,000.”
How you prepare for a home appraisal depends on which side of the transaction you are on.
When you’re purchasing a home, your lender will choose the appraiser and order the inspection. Your primary duty is to pay the appraisal fee, which will be processed through your lender.
With that said, you can insist that the lender choose a qualified and independent appraiser. This could mean asking your lender if the appraiser is affiliated with the bank, and about their qualifications and experience. You also may be allowed to be present while the appraiser is inspecting the property.
Preparing for the appraisal may involve making repairs or updates around the home. The appearance of the property and its upkeep will greatly influence the results of an appraisal.
“Generally, the physical appearance, condition and functional utility of the improvements can have a significant impact on appraisal results,” says Ken Dicks, director of appraiser compliance for Reggora, a lender-to-appraiser platform based in Boston, and a designated member of the Appraisal Institute. “Properties that are not adequately maintained to the local market standard will generally underperform.”
If you are refinancing your home, preparing the property for an appraisal can be just as important as if you’re selling. You may want to make small improvements or repairs around the home, and ensure a pleasant physical appearance with landscaping.
If your home doesn’t appear to be well-maintained or updated, or has significant issues, you may find that the appraisal is lower than you anticipated.
There are a few important physical features that an appraiser will look for and consider in their report. This involves inspecting, measuring, and photographing the interior and exterior of the property. According to Domenick Neglia, a strategic real estate advisor at Neglia Appraisals in New York, this process is very personalized.
“The appraiser should measure the house from the outside and should carefully inspect the entire interior and exterior,” Neglia says. “He will look for components that have been recently modernized, as well as what is called deferred maintenance — items that need repair or have been neglected.”
Certain upgrades may pay off in the home appraisal process, too. “Are the kitchen cabinets builder-grade, or are they customized?” he says. “And are the appliances basic brands or high-end?”
What Home Appraisers Look For
|Outside of the Home||Inside of the Home|
|Where the property is located, i.e., the character of the neighborhood, nearby amenities, schools, type of street, etc.||The size and layout of the home, including the number of bedrooms and bathrooms.|
|The size and physical condition of the property.||Updates to the home or renovations.|
|The age of the home and what materials it’s made of.||The quality of interior amenities, such as kitchen and bathroom features, a sunroom, a deck, or a pool.|
|The integrity of major structures, such as the roof, the foundation, or the chimney.||The condition of the plumbing, electric, heating, and cooling systems.|
After the inspection, the appraiser researches public and private data to reach an informed decision about the property’s value.
- An updated and well-maintained home generally will appraise for more than a poorly kept or outdated property.
- Market activity and perception can improve a home appraisal. If a home is selling in an area where demand is high and availability is limited, the appraised value can increase.
- Location plays an important role. Specific neighborhoods may be more desirable to buyers than others, leading to higher appraisals.
- An oversaturated market can hurt appraisals. If homes are slow to sell or there are too many available properties compared to demand, home values typically drop.
- A home that is visibly not maintained can expect a lower home appraisal value than if it’s well cared for.
- Overimproving a home can result in an appraised value that doesn’t reflect the homeowner’s investment in the property. Appraisers set values that are in line with the local market, so certain improvements may be out of line with the area.
The length of time it takes to complete a home appraisal depends on the size, complexity, and layout of the property. The larger and more difficult the home is to inspect and measure, the longer you can expect the appraisal to take. With that said, the average home appraisal is fairly quick.
“The on-site viewing and data collection process at the property can take up to an hour, depending on the size and complexity of the property,” Dicks says. “However, the entire appraisal process — that is the gathering of all required data, completing the analysis, and reporting the results — can take up to a couple of weeks.”
Once you receive the results of your home appraisal, you’ll want to examine the details. The report usually will include photographs of the property, and notes on each factor involved in the valuation.
It’s important to remember that an appraisal reflects the appraiser’s opinion of the home’s value. While this appraiser is a licensed professional, home appraisals are not an exact science.
So, what if you received a higher — or lower — appraised value than expected?
If you’re buying a home that appraises for less than anticipated, you may want to return to the negotiation table with the seller. The appraisal can support your argument for a lower purchase price, though sellers aren’t always obligated to lower the price. Additionally, your lender may reduce how much it will allow you to borrow. If you still plan on buying the home, you may need to come up with a larger down payment to cover that gap.
However, if the property appraises for more than you’re buying it for, consider yourself lucky: You’re getting a deal on the home, and you’ll start out with more equity than expected.
If you have a contingency clause in your purchase agreement, any issues with the appraisal could allow you to back out of the home purchase. There often are time limits on such contingencies, so you’ll want to schedule your appraisal as quickly as possible after signing the agreement.
A lower-than-anticipated home appraisal can derail a sale or force the seller to lower their asking price. The buyer may try to renegotiate the price, and while you don’t have to agree, you risk losing the sale if there’s a contingency clause in your agreement. Additionally, the buyer’s mortgage lender could back out of the financing or require a larger down payment, which the buyer might not be able to make — causing the deal to fall apart.
If your home appraises for more than anticipated, you can use this as a reference point when listing your property for sale. However, you can’t raise the price if you’re already under contract with a buyer.
The home appraisal value plays a key part in the refinancing process.
For instance, if your home appraises for less than you anticipated, you may want to wait to refinance until you have more equity.
If it appraises at a higher value, it could make sense to borrow some of your equity with a cash-out refinance or home equity loan to pay for renovations or other major expenses. If your home has increased in value, you might be able to refinance with enough equity to stop paying for PMI.
Here are the answers to some frequently asked questions about home appraisals.
If you disagree with the results of a home appraisal, you can request that your lender review the report. This is especially important if you know of recent comps that were excluded in the valuation or information that was unavailable to the appraiser at the time.
Lenders typically offer an appeals process, also referred to as reconsiderations of value. Ask your lender how you can appeal an appraisal that you find unsatisfactory.
Most lenders allow buyers to be present for the appraiser’s inspection of the property they’re purchasing. Check with your lender early on to ensure that you can attend.
A home appraisal usually is conducted after the sales contract is signed.
The actual home appraisal timeline can vary, according to the home appraiser’s availability and the lender’s schedule. But the final home appraisal report must be provided to the buyer no less than three days before the closing date.
Whether you’re buying, selling, or looking to refinance your mortgage, a home appraisal can be an integral part of that process. Knowing what to expect from an appraisal could help you make the most of the results and reach the right decision for your finances.