How does a home appraisal work?
Home appraisals are used to secure a loan from a financial institution for a mortgage or down payment for a home purchase. They’re ordered by the same financial institution when you’re refinancing your mortgage. Here’s a brief overview of the process of a home appraisal.
|1||Your appraisal is scheduled||The lender must run an appraisal to determine a fair market value for a property to determine your loan. The applicant must pay for the cost of the appraisal, and the appraiser cannot have a personal connection to the financial institution or the buyer, seller, or owner of the home.|
|2||The appraiser visits the home||An appraiser will visit your home and assess its size, location, condition, and added elements of value to determine a fair market value for the house. Your appraisal may take from 20 minutes to two hours.|
|3||The appraiser writes a report||Your appraiser will write a full report describing what they found in the home assessment. They’ll also include data on the value of comparable properties in the area. They’ll assign a fair market value to the house.|
|4||Your loan is granted or denied by the lending institution||If you’re trying to secure a loan to buy a house and the appraisal valuation comes back less than the selling price, the financial institution may deny your loan. Your loan will be granted if the value of the house meets the agreed-upon purchase price, or is greater than the purchase price. The lender will compile a closing disclosure enumerating your down payment, closing costs, or the terms of your mortgage.|
What does an appraiser look for?
To appraise a home, the homeowner hires a third-party home appraiser to run an appraisal report of a home by inspecting and assessing the property. A property assessment is similar to a home inspection, but an appraiser will additionally take the sales prices of comparable homes—or comps—into account.
To determine the value of the property against similar homes, an appraiser assesses the following:
- Square footage
- The physical condition of a home (including appearance, cracks, water damage)
- The structural integrity of the home
- Quality of landscaping around the home
- The home’s number of bedrooms and bathrooms
- Any amenities or renovations like fireplaces, swimming pools, lighting, plumbing, and finishes such as hardwood floors or marble countertops
Four tips on preparing for a home appraisal
Whether you're a home buyer or a homeowner looking to refinance your mortgage, it's important to prepare for your residential appraisal. Getting a low appraisal can mean having a higher loan-to-value ratio, which can affect the interest rates of your loan.
|1||Review the market||If you’re looking to secure a loan for a new home, you should review recent sales of other homes in the neighborhood of the home you want to buy. This can give you an idea of how your desired property might be appraised.|
|2||Examine your desired home's state of repair||If you’re a homeowner looking to refinance your mortgage, you want to make sure your house is in the best condition it can be before the inspection. Make any necessary repairs to your home prior to inspection, paying particular attention to painting and patching walls, checking all light switches and wall outlets work, and repairing roofs and gutters.|
|3||Access the condition of your house||If you’re a homeowner looking to refinance your mortgage, you want to make sure your house is in the best condition it can be before the inspection. Make any necessary repairs to your home prior to inspection, paying particular attention to painting and patching walls, checking all light switches and wall outlets work, and repairing roofs and gutters.|
|4||Provide documentation||Provide copies of your home's previous appraisals to the home appraiser, and keep documents of all home improvements made along with the attached costs.|