What Is a Home Appraisal and How Do They Work? (2024)

Vault’s Viewpoint

• Home appraisals help buyers, sellers and lenders understand the fair market value of a home.
• Appraisal fees vary depending on many factors, like the property’s size and the appraisal’s complexity.
• If you’re selling a home, an appraisal below your agreed-upon sales price could stop the sale in its tracks.

What Is a Home Appraisal?

When taking out a mortgage or refinancing a home, mortgage lenders require home appraisals to ensure that the property securing the loan is worth the amount they’re lending, otherwise known as the fair market value.

During an appraisal, a licensed appraiser will assess the property, local market data and public records. The appraiser will search county and town-specific databases, Multiple Listing Service (MLS) records and more to learn about the property.

After doing their research, the appraiser will assign a value to the property based on their expert opinion and the information they’ve gathered. Appraisals can be done in a few different ways, with in-person, hybrid and virtual appraisals all available.

Once the appraisal is complete, the appraiser will send their findings to your lender in the form of an appraisal report. The appraiser must also send the report to you at least three days before your loan closing.

How Much a Typical Home Appraisal Costs

On average, you can expect your home appraisal to cost about $500, according to the National Association of Realtors. But these costs vary depending on factors like the size of the property, the type of home loan you’re using and the type of appraisal being done.

Although lenders are often the ones to order appraisals, the cost of the appraisal is usually passed on to you. This cost can be rolled into the total closing costs for your home.

Key Factors Homebuyers and Sellers Need To Know About Home Appraisals

When working with an appraiser, there are a few things that both buyers and sellers need to be prepared for. A few of those factors include:

Impact on Mortgage Approval

For buyers, the appraised value affects the mortgage approval process. Lenders usually require the appraised value to meet or exceed the purchase price before they lend you money.

If the appraisal comes in lower than expected, buyers may need to renegotiate the price or provide a larger down payment. For sellers, if the appraisal affects the buyer’s approval odds, the sale could potentially be lost.

The Role of the Current Market

The general state of the housing market has a bigger impact on the appraisal value of the home than the buyer or seller may want it to. Basic principles like supply and demand and interest rates affect how much a house is worth at any given time.

How Appraisers Determine Value

An appraiser considers numerous factors like the location, size and condition of the home. They also look at features such as the number of bedrooms and bathrooms, square footage and any recent renovations or upgrades. Sellers should know that not all additions or improvements will add value to the home.

What Does a Home Appraisal Look For?

When completing a home appraisal, appraisers will review every aspect of the interior and exterior of your home. This includes elements ranging from the home’s structural components, like the foundation and roof, to detailed aspects such as the wainscoting on the walls.

The appraiser will pay special attention to the following factors:

• Size of the property: The overall size of the property, including the square footage of the home and the lot it sits on, will be taken into consideration. The appraiser will also factor in the number of rooms included in the home, paying special attention to how many bedrooms and bathrooms are included.
• Condition: The condition of the property plays a critical role in its value, so the appraiser will dock from the property value for anything in disrepair.
• Quality and design: The appraiser will consider the quality and design of the property features, assigning more value to properties constructed of higher quality materials or containing high-value items that will remain on the property once it’s sold, such as landscaping.
• Location: Properties in desirable locations, such as on waterfronts or close to popular local attractions, are typically worth more than those outside of them. Your appraiser will consider local real estate comps to help them determine how a property’s location affects its value.
• Age of the property and its features: The appraiser will consider how old the property is. Newer properties tend to come in at a higher appraisal price than older houses, which are more susceptible to issues. Plus, the appraiser will note the age of all systems and appliances in the house.
• Home improvements: Improvements made to a home can help increase its value. These can include features like new countertops, updated appliances and added landscaping.

What Is Included in a Home Appraisal Report?

The appraiser will prepare an appraisal report that details how they arrived at their valuation. There isn’t one set form that all appraisers use, but many use the Uniform Residential Appraisal Report provided by Fannie Mae when appraising single-family homes.

In addition to the completed report, which should describe the home and its location in detail, this form requires the appraiser to include:

• A street map: This map should show where the property being appraised is, as well as any properties used in comparison.
• An exterior sketch: This sketch should detail any improvements made to the home since it was last appraised, the dimensions of the home and any calculations used to find the estimated gross living area. A floor plan of the interior, including its dimensions, might be provided in some cases.
• Photographs of the home being appraised: Photographs of the home must be included and must show the front, back and street views of the home.
• Photographs of comparable homes: Photographs should be included that show any homes used for comparison during the appraisal process.
• Additional data used: Any additional data used to appraise the home should be attached or provided as an addendum.

What Is the Timeline of a Home Appraisal?

The home appraisal timeline begins after you’ve submitted a mortgage or refinance application, with your lender ordering the appraisal. Typically, the appraiser will schedule the appraisal for a few days to a week from when the order is placed.

Appraisers usually complete their inspection of the home within a few hours, with additional time needed to research the home and comparable properties in the area. You can expect your lender to receive an appraisal report within a week, but this can vary depending on the appraiser’s availability.

What Are Possible Downsides of a Home Appraisal?

Home appraisals can have a few downsides, depending on if you’re the buyer or the seller. For buyers, a home appraisal might come back for less than what you agreed to purchase the home from, meaning it isn’t worth as much as you’ll pay for it. In some circ*mstances, this can cause your lender to back out of your loan and leave you scrambling to fund your purchase.

Sellers might find a downside in the appraisal process if their home is appraised for more than what they are selling it for. If this happens, you’ll lose out on potential profits you could have made by listing your home for a higher price. As a seller, you might also run into trouble if you have an appraisal contingency in your sale contract and it isn’t met, allowing the buyer to back out of the purchase.

When You Know It’s Time To Get a Home Appraisal

You’ll know it’s time to get an appraisal when you’re buying or refinancing a home. Typically, this will happen after your lender receives your loan application.

Otherwise, you might consider appraising your home when estate planning or financial planning. Your homeowner’s insurance company might also request to appraise your home to prevent disputes in value should something happen to your home.