The Home Appraisal Process
A home appraisal is an objective, third party estimate of the fair market value of a property. It can protect the buyer from paying more than a property is worth in the current market and mortgage companies from loaning more money than the value of the property. Most lenders require this objective assessment before they will grant a loan. Should the borrower default, they will be able to recoup their investment through the sale of the property.
Getting a Home Appraisal
When a buyer applies for a mortgage, the lender will hire a certified, state-licensed home appraiser to assess the size, appearance, and condition of the home as a condition of approving a loan. Although the buyer pays for the home appraisal, the mortgage company chooses the company. The fee for the appraiser is paid as part of closing costs and should cost between $200 and $600, depending on the size and location of the home.
A home appraisal can take up to several hours, but usually lasts 30-60 minutes, depending on the size of the home. This is different from a home inspection; an appraiser won’t be looking for specific problems, although they might note obvious ones. They won’t test the appliances or look to see if the electrical meets the local code. Home appraisals also do not affect your property taxes. The results are confidential and will not be released to your local municipality.
The final value is based on several factors:
- Comparable properties in the area
- Property size and features: number of bedrooms and baths, a view
- Property exterior: the condition of the roof, the walls
- Property interior: the condition of the walls, the floor, the fixtures
- Extra features: a pool, beach access
- Improvements: a newly remodeled kitchen, an addition
A final home appraisal report will be prepared, assigning a value to the property using the information collected from the inspection and the research on the comparable properties. The report usually includes how the property value is determined, the condition of the home, any significant problems, comments about the area and relevant supporting materials like maps and photographs. After the home appraisal is complete, most lenders will order a review of the appraisal computer to verify the value.
How to Prepare for a Home Appraisal
Although the ultimate value of your home is in the hands of the appraiser, there are some things that you can do that will help raise the value of your home. Most of the process can be compared to staging a home for sale.
- Request a local appraiser: someone with knowledge of the local market is more likely to understand how your home is valued
- Clean the exterior: The first impression of a home can set the tone for the entire appraisal.
- Clean the interior: A neat, clutter free home can diminish the value in an appraiser’s eyes.
- Perform repairs: Everything in a home should perform as expected.
- Remove pets: A pet can be distracting and cause the appraiser to miss important details.
- Be honest: Trying to cover small, obvious imperfections can cause more harm by giving the impression that there are more problems hidden away.
What to do if the Appraisal is Low
If the appraisal is low, the mortgage company might not grant a loan for the full amount requested. There are options for the buyer and seller if they would still like to close according to the original schedule. Depending on the reason for the low appraisal, there are some options for both the buyer and the seller.
- Order a second home appraisal
- Dispute the home appraisal through comps
- Change the closing date and find another lender
- Change the purchase price
- Find additional funds either through savings, a friend or relative or a second mortgage
- Call off the sale