It’s natural to be curious about how a home appraisal works, especially when you’re in the process of selling and an interested buyer is relying on loan assistance to afford your asking price.
While no two appraisals are exactly the same, there is a great deal of consistency on what to expect and how to prepare.
We’ll start with the nuts and bolts of what a home appraisal consists of and then get into how you can make the most out of your home’s appraisal.
What is a home appraisal?
A home appraisal is a professional’s opinion of what your home is worth in the current market condition.
It consists of two major sets of information to determine an accurate value: A walkthrough inspection of your property and an examination of the comparable homes in your area (called comps). The inspection itself can take 15 minutes to several hours, depending on the size and complexity of the home. To complete the whole appraisal process, you’re looking at a few days to a few weeks.
Appraisers always start with the inspection to get a clear idea of what the product is that they’re making a valuation on. They need to confirm the layout of the home and rate its overall condition. Special consideration will be given to any safety concerns or big ticket items like the foundation, roof, and HVAC system (heating, ventilation, and air conditioning).
“I’m determining what upgrades they have, what the condition of the house is, and what the quality of the construction is,” said Steven Crane, a state-licensed real estate appraiser with 20 years of experience in Arizona.
To reach an informed and comprehensive valuation for a home, some specific data need to be gleaned.
Appraisers first identify ‘comparable’ homes to yours that have recently sold within your general area so they have an idea of how much buyers have been paying for like-kind properties.
A good comp would be a similarly-sized home in your neighborhood that sold within the last couple of months and has most, if not all, of the same features as your home.
Using the comps available, appraisers will tweak their valuation of your home by assigning dollar amounts to certain features that don’t quite match up and then add or subtract those items from the overall estimate. An example would be if a comp property has a fireplace and your home doesn’t, then the appraiser might subtract the average cost of a fireplace from your home’s value.
Some appraisers also factor in market trend data to make their valuations as current as possible. This sale time adjustment takes into consideration how long ago a good comp sold and accounts for the appreciation or depreciation that occurred in the housing market since then. So if a comp sold two months ago and the home prices in the area have gone up about 12% over the last year, then an appraiser might add about 2% onto the value to adjust for the market change.
What do home appraisers look for when they visit my house?
Certified appraisers most commonly use the Uniform Residential Appraisal Report when determining a home’s value.
The report directs the appraiser to look at the quality and condition of both the interior and exterior of the home. This includes such things as the foundation, the roof, the walls, the water drainage on the property, the window type, and the floors.
They’re also looking at amenities (i.e. pool, fireplace, patio/deck, fence), and appliances (i.e. refrigerator, range/oven, dishwasher), as well as any health and safety concerns, such as evidence of infestation or dampness.
“One thing we need to inspect is water heaters,” Crane said. “Water heaters are not necessarily a safe item if it fails because you have high-pressure hot water that can potentially cause damage to another human being.”
Some of the other characteristics an appraiser considers when determining a home’s value include:
- Location of your home
- Market conditions
- Size of your home (square footage)
- Number of bedrooms and bathrooms
- Age of your home
- Upgrades and renovations
- Size and features of your overall property
- Neighborhood characteristics
What hurts a home appraisal?
- Market conditions and housing trends
- Undesirable location
- Poor quality construction
- Few beds and baths
- Poor curb appeal
- Signs of neglect or deferred maintenance
- Lack of amenities
- Outdated or broken appliances
- Outdated home systems (alarms, HVAC, septic, etc.)
- Pest infestation or damage
- Structural or foundation issues
- Limited or no quality comps
How should I prepare for a home appraisal?
Preparing for a home appraisal is similar to preparing for a visit from prospective buyers. The main difference is appraisers aren’t looking at your furniture or decor.
“Don’t worry about your personal property,” Crane said. “Look at health and safety items.”
If there are any exposed electrical wires, cover them up. If your porch is missing a handrail, try to have one installed. Make sure your smoke detectors are working. Make sure your water heater is installed properly. Make sure your garage door closes.
“Don’t try to hide anything, because we’re going to look behind every door and into every space,” Crane said. “You’ll also want to have an explanation for any evident damage to your home.”
It’s also important to let the appraiser know what improvements you’ve made to the property in recent years. This can be done by telling the appraiser directly or leaving a packet of information for the appraiser to see when he or she visits.
“If [the homeowner] has done a bunch of updates, either I type it out or they’ve left things on the counter showing what all’s been done,” said Linda Williams, a top-selling real estate agent in Fort Wayne, Indiana who sells properties 50% faster than other agents in her area. “Like, ‘We’ve just had new granite countertops put in this year’ or ‘The bathrooms have been remodeled’ or ‘The kitchen has been updated.’”
Some other things to do before the visit include:
- Tidy up the house inside and out
- Make sure your property is accessible
- Secure your pets
- Do your own comp research and offer the information to the appraiser
Should I be present for the home appraisal?
While not required, being home during the appraisal can be a good idea.
The appraiser may need your help gaining access to certain areas of your home or have questions about the property, such as if there have been any notable improvements in recent years that aren’t obvious (i.e. a new HVAC or septic system).
One thing you’ll want to be conscious of, however, is not to follow the appraiser around or distract them with conversation.
“[Homeowners] can actually diminish the quality of the appraisal if they’re trying to engage you during the inspection,” Crane said.
If a homeowner is present and interested in talking, Crane will usually request that they speak after he’s done looking around and taking pictures.
“That’s when they can describe to me what they feel is important to know about their house,” he said.
Who pays for the home appraisal?
When a buyer applies for a loan, the mortgage lender makes arrangements for an appraisal through what’s called an appraisal management company (AMC). By ordering through a third party like this, it ensures the assigned appraiser is independent of the borrower, lender, and seller.
Though the lender files the request with the AMC, it is typically the responsibility of the person borrowing money (or refinancing) to pay the appraisal fees.
Does a messy house affect an appraisal?
From a strictly professional standpoint, a messy house does not affect an appraisal. What an appraiser really pays attention to is the quality and condition of the “bones” of your home.
“If it’s generally in a cluttered state, that doesn’t make any difference,” Crane said. “But if someone has obviously neglected the house and there’s a significant amount of deferred maintenance, that would affect the condition rating and that might affect the value.”
Appraisers are human, however, so walking through a home that’s in disarray can have a psychological impact on the appraiser’s impression of the home’s condition and may lead them to ask more questions, says Williams.
“So I usually just say keep it show-ready when the appraiser comes,” Williams said.
What should I not say to the home appraiser?
It’s fine to be informative about your home and the neighborhood, but it’s generally not a good idea to discuss your home’s value with the appraiser. An appraiser’s job is to be an objective valuator of real property.
When a homeowner tries fishing for how much the appraiser thinks the home is worth during the walkthrough, or pressures the appraiser in any way to reach a certain valuation, it can leave a bad taste in the appraiser’s mouth.
“They already know they have the pressure from the agents wanting to get through the appraisal stage, so they don’t need additional pressure from anyone else,” Williams said.
This is especially true if the appraiser feels like the homeowner was instructed by the home’s listing agent to apply such pressure. Real estate professionals are legally barred from trying to unduly influence the outcome of an appraisal. Toying with this delicate balance can potentially interfere with the appraisal process.
Is a home appraisal required?
A home appraisal is only required when the buyer is using some form of loan assistance.
Lenders want to know that the home being purchased is objectively worth at least the amount being borrowed by the buyer.
This serves as a safeguard in case the buyer later defaults on their mortgage and the lender has to foreclose on the property.
If it’s a cash deal, then it’s simply the buyer’s choice whether or not to have the home appraised before closing.
What if my appraisal comes in low?
If the appraisal comes in lower than the agreed-upon price in the purchase contract, then what commonly happens is one of the following: The buyer comes up with extra cash; the seller reduces the price; they meet in the middle; or they cancel the contract.
On occasion, the lender will allow the buyer to order another appraisal, says Williams.
“Some lenders will allow it and some will not,” she said. “The only caveat is that if it comes in lower, then you’re in a worse position.”
According to data from consumer reporting agency CoreLogic, in a balanced market, it’s common for an average of 7%-11% of home sales to see the appraisal come in under the contract value.
Should I consider a pre-listing appraisal?
The answer to this question depends on the circumstances and who you ask.
“I don’t usually recommend [my clients] getting an appraisal before we go to market just because every appraiser is different and sometimes by the time you go under contract, things have changed in the market, so it’s going to affect the appraisal anyways,” Williams said.
Where a pre-listing appraisal might be more relevant is when your property is unique or in a rural area with few comps to work with.
“It would help [homesellers] out, because an appraiser is going to highlight those health and safety items probably and then they’re going to get a pretty good opinion of what the value is,” Crane said.
What’s the difference between a home inspection and a home appraisal?
An appraisal and an inspection are two different real estate actions that come into play when you buy or sell a home.
The appraisal is primarily focused on valuation, or what your home is worth, while a home inspection is an assessment that examines the structural safety and condition of a property.
Where the lines sometimes blur is when an appraiser notices a health and safety concern through what Crane refers to as “casual observation.”
“If I can see it by casual observation, then I’ll make note of it in my report,” he said.
Crane doesn’t always have the expertise to confidently say whether or not something is unsafe, in which case he’ll recommend a professional take a look at it.
Get the most out of your home appraisal
Having a clear understanding of how an appraisal works can make a significant difference in how smoothly your home’s appraisal goes.
Just keep in mind that all appraisals consist of an inspection and an examination of comps. Both play an equal role in how your home is valued, so neither should be neglected. If you’re not in a rush to sell your home, you may wish to try timing the sale soon after a few comparable properties in your neighborhood are sold. This will ensure any appraisal will have strong evidence to support an accurate valuation.
A skilled real estate agent can help with strategies like this by tracking the market in your area and letting you know when the iron is hot. HomeLight’s Agent Match platform can connect you with a top-performing agent. The free tool analyzes over 27 million transactions and thousands of reviews and takes just two minutes to match you up with top agents in your area.
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