Just as each home has a determined listing price based on the current market, surrounding comparable sales (comps), and the expert recommendation of your Realtor®, a home appraisal is the cherry on top in stating what your home is actually worth.
Home appraisers determine the valuation of a home based on its condition, age, location, and many other important factors which we’ll dive into throughout this post.
To better explain the residential home appraisal process and how it works, we’ve spoken with experts, including a home appraiser who’s been in the appraisal business since 2005, and a real estate agent who’s walked through hundreds of appraisals with seller clients.
These two experts offer their combined knowledge on this topic so we can bring you the facts, and better explain how a home appraisal works, what a home appraiser does, and how exactly an appraiser determines a home’s value.
What does a home appraiser do?
“The appraisal is the collateral component of the overall underwriting decision, which is often an important factor in the approval decision and may dictate loan limits,” explains appraiser Chris Bourland of JB Real Estate Valuation & Advisory.
An appraiser performs research on the surrounding area and conducts a home visit to arrive at a well-accessed number of how much a home is worth. This number then gives the homeowner (or future homeowner to be) a better idea of a home’s market value, and it helps lenders access an appropriate financing amount.
“For purchase transactions involving financing, the appraisal serves the lender by providing an opinion of value so that loan decisions can be made,” says Bourland.
Stay tuned for more on what exactly a home appraiser is looking at during their research, and what to expect from an appraisal visit.
Who hires and pays for the home appraiser?
Who pays for appraisal fees depends on who ordered the appraisal and what the appraisal is being used for. Here’s how it works:
|Use of the appraisal||Who usually pays for it|
|Refinance||Homeowner / borrower|
|Home purchase||Buyer / borrower|
|Pre-listing determination of value||Owner who is planning to sell|
|Settling an estate||Family or estate assets|
In the case of a refinance or mortgage loan, the lender will hire an appraisal through appraisal management companies.
These companies provide third-party, outsourced appraisal contractors who are not affiliated with the lender or borrower. Although the lender arranges for the appraisal through the AMC, it is the responsibility of the borrower to pay for the appraisal fees.
What do appraisers do when they visit your home?
A number of factors can impact a home’s value, and a home appraiser looks at each one closely during their appraisal visit.
Appraisers assess the value of a home by focusing on the following aspects:
A home’s condition
- Necessary repairs
- If renovations and upgrades have been made
- Whether there’s any major damage, including water damage, pest infestations, etc.
- The home’s livability (i.e. if it’s move-in ready, comfortable, and safe)
- The neighborhood conformity (style, construction)
- Gutters, siding, exterior condition
- Wear and tear on appliances
- Electrical wiring and code compliance
A home’s attributes
- The age of the home
- Home size (square footage)
- Number of bedrooms and bathrooms
- Type of house (single-family, townhouse, condo, etc.)
- Design and style (modern, ranch, craftsman, colonial)
- How functional its layout is
- Home construction (building materials used)
- Foundation type
- Basement, attic
- Car storage
- HVAC information
- Appliances (refrigerator, stove, oven, dishwasher, washer, and dryer)
- Extra features and amenities (fireplaces, outdoor space, pools, storage)
- Type of neighborhood (urban, suburban, or rural)
- The pace of growth in the neighborhood (fast, slow, steady)
- Whether property values are increasing, decreasing, or remaining the same
- Neighborhood land use (residential or commercial, single- or multi-use units)
- Housing trends (what’s happening in the area?)
Each of these factors can impact a home’s value, either by raising it or lowering it a couple of thousand dollars.
For example, boosting your home’s curb appeal, patching up the exterior, and making important upgrades like updating the appliances throughout the house, can help raise a home’s appraised value. While having a home that’s positioned in an undesirable location, has a poor layout, or built within a designated flood zone, are all factors that can negatively impact your home’s appraised value.
What do appraisers do outside of a home visit?
Beyond looking at the home and property, to arrive at their appraised number, appraisers consider comparable homes in the area and compile data that stands to impact the home’s value.
This means they take a close look at “comps” and “other variables” that can increase or decrease the value of a home.
In real estate, “comps” are comparable home sales. Meaning, homes that are similar in size, age, and other characteristics that have recently sold in the area.
For example, if the neighbor across the street sold their home of a similar age, size, and condition for $320,000, while another house down the block sold for $350,000, the appraiser is going to work within that range and add or subtract value for your home’s unique condition and features.
“Other variables” appraisers consider can be summed up as any outside factors that impact the desirability of a home.
“If an appraiser is appraising an end-unit townhouse property, which the market considers to be more desirable than an interior unit (with all other features being equal), the appraiser may pull paired sales which will isolate this feature (end versus interior) difference to inform the appraiser of the market supported adjustment,” explains Bourland.
When looking at comps and other variables, appraisers use the following methods.
To find nearby comps, appraisers
- Look at recently sold homes on real estate websites
- Check listings on the industry’s multiple listing service (MLS)
- Consider other public records that contain information about recent home sales prices
- Investigate the title database, which contains records of all sold properties
Appraisers check for the following factors which can affect a home’s value
- Low-flying planes overhead
- The home’s positioning (i.e., it’s on a corner that used to be quiet but is now heavily trafficked)
- Proximity to power lines
- Whether it’s on a steep hill
- If there’s a creek in the backyard
- Surrounding noise levels
- Safety threats (toxic waste facility, shooting range, registered offenders, fracking, etc.)
- If it’s in an undesirable school district
- Whether there are negative billboards or storefronts close by
Part of what a home appraiser does is identify all these nuances and incorporate them into their price opinion.
What makes some homes difficult to appraise?
Some homes are easier to appraise than others, such as cookie-cutter new development houses with dozens of other surrounding similar properties.
Trish O’Connell, a Santa Rosa, California, real estate agent with more than 20 years of experience, explains how crucial comparables are to form a reasonable range of sales values.
To provide an accurate value range, she says, the comparable sales generally must have taken place within a one-mile radius, within the last six months. However, that can change radically for what O’Connell terms unique properties.
A large horse ranch with a value that will most likely exceed $1,000,000 may not have any available comparable sales that meet that one-mile radius and six-month terms. In that case, the appraiser will have to expand the radius, the time frame, or both.
Home appraisers are trained to know “specific techniques that can be used to address problems such as the scarcity of comparable sales, the analysis of cost data, the possibility of rezoning and alternative uses, and the need to consider specially defined markets and values,” according to the Appraisal Institute.
Home appraisal vs. a home inspection
A home appraisal and a home inspection both involve a trained professional who looks closely at the condition of a home, but they accomplish very different things.
For starters, a home inspection isn’t technically required — though it’s certainly recommended — while a home appraisal is required when financing through a mortgage lender.
Requirements aside, an appraisal and an inspection determine different things about a home. To put it simply, a home appraiser tells you how much your home is worth, while a home inspector tells you what’s right or wrong with your home.
Here’s a closer look at the differences between these two professions:
|Primary duty||A home appraiser’s job is to determine the value of a home.||A home inspector’s job is to determine a home’s condition and to ensure it is safe and habitable.|
|Length of home visit||An appraisal is typically a shorter process than a home inspection. A home appraisal visit typically runs 30-45 minutes.||A home inspection visit can take several hours or more as the inspector thoroughly examines the condition of the property.|
|Who they report to||Appraisals for home purchases and refinances must be conducted by independent, third-party contractors or companies who are not affiliated with a bank or lending organization.||A home inspector reports structural, safety, or repair issues to the party that hired them, whether it’s the buyer or the seller of the home.|
|Recommendations||A home appraiser will not make recommendations or provide details about how to repair issues of concern.||A home inspector will provide recommendations on how to fix any problems revealed during the inspection process. If a home inspector finds an issue, they may recommend a more specialized inspection be conducted for a closer look. More specialized inspections include but are not limited to foundation inspections, radon inspections, roofing inspections, pest inspections, electrical inspections, mold inspections, and crawl space inspections.|
|Who pays||Typically, the appraisal is ordered by the buyer’s lender, hired by an AMC, and paid for by the buyer as part of their financing agreement.||Typically, the buyer pays for the home inspection, unless the seller orders a pre-listing home inspection to gain an advantage on pricing and repairs before listing the home.|
|Cost||A typical appraisal can cost $300 to $600||Home inspections can cost $275 to $400|
What if the appraisal of my home comes in low?
If the appraisal on your house comes in low, you’ll want to consider the following:
- Are special features such as your screened-in porch and pool noted in the report?
- Does the appraiser have local expertise to take your proximity to nearby attractions into consideration?
- Did the appraiser take photos of your house during the on-site visit?
- Did they evaluate both the inside and outside of your home?
- Did the appraiser accurately pool together the home values of similar, nearby properties in their analysis?
If you’ve made recent improvements to the home, like expansions and renovations, the appraiser should factor this work into the overall property value.
Another key piece of valuing a home is its condition — overgrown landscaping, stained carpet, and peeling paint on the outside can all detract from a property’s value and may or may not be reflected accurately in an appraiser’s calculations.
On the flip side, a homeowner that’s kept up with their home’s maintenance needs for three decades will typically be rewarded with a higher appraised value.
An experienced appraiser will also note how well the home is constructed. If the quality of the materials and the workmanship are high, these factors can bump up your home’s value.
How do you know if an appraiser is qualified?
Given the importance of the appraiser’s work and its impact on whether your sale closes, make sure the professional doing the appraisal is properly qualified and licensed to do the work.
Licensing rules vary by state, however, those rules must be at least as strict as the qualification criteria established by the Appraiser Qualifications Board certification.
In short, appraisers must complete their hourly education requirements and pass the National Uniform Licensing and Certification Examination. And take note, local knowledge of an area also matters when it comes to appraising.
“Appraisers are required to have geographic competency as well as competency in appraising a particular property type,” explains Bourland.
So, your appraiser should not only be licensed with the proper training but also have experience appraising dozens of homes in your local area.
Preparing for a home appraisal, and what comes next
Whether you have a home appraisal done before putting your house up for sale, or once it’s been ordered by the buyer’s lender, at some point in the selling process, you’re going to have to prepare for a visit from an appraiser.
To learn more about preparing for a home appraisal, check out our step-by-step checklist for sellers on how to ace your home appraisal. From learning how to research your home’s value to appraisal etiquette 101, our guide will walk you through the appraisal process from start to finish.
If this is your first home appraisal, your real estate agent can also help you prepare for the appraiser’s visit, and negotiate any repairs following the appraisal and the home inspection. If you haven’t found an agent yet, HomeLight can connect you to a top-performing agent in your area today. Our service is 100% free, with no catch. Agents don’t pay us to be listed, so you get the best match.
After the appraisal is complete, the appraiser will compile an official appraisal report. Although this document is typically only shared with the buyer and lender, as a seller, you can request to see a copy of the report if you wish.
Once you have your home’s appraisal, your agent can help determine the best way to move forward with your home sale based on its valuation and current market trends.
Writer Annie Sisk contributed to this story.
Header Image Source: (Andrey_Popov / Shutterstock)