Your Guide to The Home Appraisal Process as a Homebuyer

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Buying a home can be equal parts exciting and scary. And, there are a lot of steps to the process that may seem surprising or unexpected.

Getting an appraisal is just one of those steps in the homebuying process, but arguably one of the most important — an appraisal helps determine the value of a property.

You may be wondering — when is the appraisal done when buying a home? Once your offer has been accepted by the seller and you have signed the purchase contract, it’s time to order an appraisal.

If you’re not sure what an appraisal is or why you need to get one, you’ve come to the right place. We talked to Brad Gore, a Branson, Missouri real estate agent with 18 years of experience, to give us the key info on appraisals. Let’s dive into what you need to know.

What is a home appraisal?

First things first, what is a home appraisal? A home appraisal is an assessment of the fair market value of a real estate property. A trained professional, called a home appraiser, will objectively evaluate the property to determine how much it is worth.

Appraisers commonly use these factors to decide the value of a property:

  • Comparable properties: Before even visiting a property, a home appraiser will evaluate the prices of recently sold properties in the same area. Appraisers use local multiple listing services (MLS) to evaluate this, among other resources.
  • Age and condition: Appraisers will look at the history of the home to see when it was built as well how well it has been maintained.
  • Size of the house: Square footage has a large impact on a home’s value and will be used to either add or subtract value in comparison with other homes in the area. Bedroom and bathroom count also have a significant impact on how much a home is worth.
  • Location: The expected growth of a neighborhood, the lot location, and the prices of properties in the same area can all impact the appraised value of the home.
  • Lot size: A bigger lot means a property has a higher value in most cases, especially if the property is located in a highly desired area.
  • Upgrades: Any recent additions or upgrades in the home can add significant value to a home. Some upgrades add more value than others, such as kitchen or bathroom updates.
  • Outdoor space: Depending on how well maintained the yard or pool (if applicable) is, having outdoor space will often add value to a home and will be noted in the appraiser’s report.

Home appraisals serve to help buyers avoid overpaying for a property and help the lender avoid lending a buyer more money than the home is worth.

They’re trying to focus more on square footage, the location, the closest comps they can find, how many bedrooms, how many bathrooms … they try not to focus too much on if a color of granite is worth more than another color of granite.
  • Brad Gore
    Brad Gore Real Estate Agent
    Brad Gore
    Brad Gore Real Estate Agent at ReeceNichols
    Currently accepting new clients
    • Years of Experience 20
    • Transactions 242
    • Average Price Point $197k
    • Single Family Homes 193

The home appraisal process

So you’ve made it through the house-hunting phase and negotiations, but when is the appraisal done when buying a home? Let’s walk through the process of a home appraisal so you know what to expect when you get there.

Step 1: Your offer is accepted!

When you make an offer on a home, the seller will either accept, deny, or make a counter-offer. If the seller accepts, this is when you as the buyer sign the purchase contract to solidify the details of the sale.

If you committed to making an earnest money deposit as a part of your offer, you will submit your earnest money at this time. You typically deposit earnest money in an escrow account where it will be held until closing.

Step 2: Submit a full loan application

Before you start shopping for homes and making offers, it’s a good idea to get prequalified or preapproved for a mortgage. But you might not submit your full loan application to a lender until your offer is accepted, unless you have applied for an underwritten preapproval.

As soon as you’re under contract on a home, work with your loan officer to submit your loan application. Make sure to be quick about this, so they can get started on the next step.

Step 3: Order the appraisal

Typically, the lender will coordinate the appraisal at the same time you submit your full loan application. “Many lenders go ahead and order [the appraisal] the first day we get it under contract,” says Gore.

If you are paying cash for your new home, it would still be a good idea to order your own appraisal to ensure you are not overpaying for the property. In this case, you or your buyer’s agent will be responsible for finding a reputable appraiser to evaluate the home.

Step 4: Appraiser gathers data and visits the property

Once the lender orders the appraisal and the assignment has been accepted, the appraiser will reach out to either the seller’s agent or the seller directly to schedule a time to inspect the property in person.

The appraiser will take a look at the purchase agreement and purchase price before-hand, but this shouldn’t impact how they evaluate the property’s value. Their job is to use multiple factors to calculate an objective fair market value of the property.

“They’re trying to focus more on square footage, the location, the closest comps they can find, how many bedrooms, how many bathrooms … they try not to focus too much on if a color of granite is worth more than another color of granite,” adds Gore

Once the appraiser gathers all the information they need and takes pictures of the home inside and out, they will write up an appraisal report. There isn’t a standard format required for all appraisal reports, however, Fannie Mae and Freddie Mac have developed standard appraisal report forms that are often used.

All appraisal reports should include at a minimum:

  • The opinion of value of the property (including the approach the appraiser took to determine this value)
  • Date that the property was assessed
  • Detailed information about the property (square footage, bedroom count, lot size, building materials, and so on)
  • Information about the neighborhood
  • Whether the property is located in a FEMA Flood Zone
  • Evaluation of the comparable sales that were used to determine value
  • Any defects that will need to be fixed before closing (safety issues, chipped paint, or exposed wiring)

Step 5: Lender receives the appraisal report

The typical appraisal takes between 21 and 28 days to be completed in 2022, according to Gore, so expect to wait about three weeks to get yours back.

In most cases, the lender orders the appraisal so the report is submitted to the lender. The Equal Credit Opportunity Act Regulation B requires lenders to provide borrowers with a copy of the appraisal report 3 days before consummation of the loan, but in some cases this can be waived.

Step 6: Renegotiate as needed

The appraised value of the home can impact both your loan and how much you have to pay for the property. In some cases, the appraisal can lead to a renegotiation. Here’s what to do for each scenario.

If appraisal comes in low

Sometimes appraisals come back lower than the agreed-upon purchase price. According to CoreLogic, the percentage of appraisals coming back lower than the offer price was 20.1% as of May 2021, but they expect this percentage to drop to between 7% and 9% in 2022.

If your appraisal comes back low, you may need to rethink your offer and plan for negotiation. A lower appraisal means the lender won’t lend you as much money as you will need to finance the purchase. Your options include:

  • Trying to renegotiate the deal to a lower price
  • Finding a new lender and getting another appraisal in hopes that the second appraisal will match the offer price
  • Gathering data to support the purchase price and challenging the appraisal with a reconsideration of value
  • Providing more cash to cover the gap
  • Walking away if your purchase agreement allows

Don’t panic. “The first thing we try to do is help the appraiser see why the agents and the buyer and the seller have agreed on this price,” Gore explains.

“If it’s a government-backed loan it will have to appraise at the value on the contract, so if the appraisal is low, you may have to do some negotiating and if the seller is not amenable, you may not be able to buy that home,” says Gore.

Ultimately, you should strategize with your real estate agent to determine what makes the most sense for you and your situation.

If appraisal is accurate

Whew! With an appraised value that matches your purchase price, you can move forward with the purchase and closing smoothly.

If appraisal comes in high

WooHoo! A high appraisal is also cause for celebration. It means you have agreed to pay the seller less than what the property is worth, so you have already built equity in your new home!

Frequently asked appraisal questions

What happens if the appraisal is delayed?

When you sign the purchase agreement, you agree on a closing date. Many different factors can impact the closing date and one of those is the appraisal. If the appraisal is delayed, keep in touch with the seller or seller’s agent so they know that you might need to push the closing date.

A delayed appraisal doesn’t always mean you need to push the closing date, but it can. In most cases, the seller will agree to change the closing date if it’s needed.

Who pays for the appraisal and how much does it cost?

The homebuyer typically pays for the appraisal, but it’s possible to negotiate payment by the seller in certain situations. The average price for an appraisal in 2022 is between $500 and $700, according to Gore.

The price of the appraisal can vary widely depending on the size of the home, the local market, and where the home is located. For example, an appraisal for a home in a more rural area might be more costly to account for the time that it would take an appraiser to travel there.

What is the difference between a home inspection and an appraisal?

A home inspection usually happens either before an appraisal or around the same time. The home inspector takes a look at all of the physical features of a home, from the roof to the foundation, to determine the condition of the property. The home inspector is conducting a much more thorough evaluation of the home and is trained to spot issues with the home’s foundation, HVAC systems, plumbing, electrical systems, and more.

Another key difference is that the buyer is responsible for choosing the home inspector (with help from their buyer’s agent) while the appraiser is chosen by the lender or the appraisal management company the lender works with, unless the buyer is paying cash for the property.

The inspection usually does not affect the mortgage loan, while an appraisal might. However, if you have an inspection contingency in your purchase agreement, you may be able to back out of the purchase or renegotiate the purchase price if an inspection reveals something that needs repair.

How long is an appraisal good for?

The expiration date of an appraisal depends on the lender and the time period that a lender will accept an appraisal is called the term of validity. Some lenders won’t consider an appraisal valid after 120 days, while others require a new appraisal after as little as 60 days.

Because market conditions can change so rapidly, lenders want to make sure that the value of the home will remain the same from the time the appraisal is completed to the day of closing.

Making sense of home appraisals

Understanding home appraisals can be overwhelming. Having the right agent on your team puts you on track for a simpler homebuying process. An experienced real estate agent can help you understand a home appraisal report and guide you through the journey to homeownership.

Use HomeLight’s agent matching service to find the best agent and take the stress out of the house-hunting process.

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