Appraisals: What They Are and How to Prepare

If you’ve ever bought or sold a home, or even refinanced your mortgage, you know there are many steps and factors that go into determining a home’s value and price. The home appraisal is arguably the most important step in that process, and often the final say on whether or not the agreed-upon price is equal to the actual value of the home.

With so much riding on the appraisal, it’s important to go into the process feeling confident and informed about what to expect. Whether you’re looking to sell or refinance your current home, or about to put an offer on a new home, we’ll cover everything you need to know about the appraisal process and how you can best prepare.

What is a Home Appraisal?

A home appraisal is an impartial, third-party value analysis of a home and property to determine whether the home’s price is accurate based on its condition, location, and features. Home appraisals are typically required by lenders when applying for a mortgage, as the lender will want to ensure that the homebuyer is not overborrowing.

Not only is an appraisal important for the lender, it’s+ also important to both the buyer and seller, helping to ensure the agreed-upon price is fair and accurate.

The Appraisal Process

Appraisals are typically ordered by the lender since the findings primarily protect their best interests, and take place as early as possible after the buyer and seller agree on a price.

Appraisal Inspection

The home appraiser will then set up a time with the seller for the initial visit and appraisal inspection. This process includes a review of both the exterior and interior of a home, checking to make sure it is in good structural shape with no major safety issues, noting the home’s features like number of rooms, square footage, and whether or not there have been any major upgrades or remodels since the last real estate transaction. Appraisers will also typically take photos during the walk-through to document their findings.

The type of loan can also determine what is included in the appraisal inspection. For instance, unlike conventional loans, FHA-backed loans and VA loans usually require appraisers to test utilities and appliances to ensure they are in working order, per government rules.

Appraisal Research

In addition to an inspection of the home, an important part of the appraisal process is research of the market and current trends. An appraiser will research the price of comparable homes that were recently sold in the property market. Appraisers will look for homes with many of the same characteristics as the one they are appraising that are located within surrounding neighborhoods.

To find this information, appraisers will generally review government records and home sale information from the Multiple Listing Service (MLS), a database that includes listings and sales records posted by real estate professionals.

What’s in a Home Appraisal Report

The Uniform Residential Appraisal Report (URAR) is the standardized document that most licensed residential appraisers use when determining a value for a subject property.

Of course, the report includes the information all interested parties are most concerned about: the property’s value. This includes the definition of market value as well as the information that was used to determine the home’s fair market value, and its effective date (appraisals are typically valid for four months).

The report also includes:

• Characteristics of the interior and exterior of the property, its condition, and photographs taken during the inspection
  
  
• Background on the market, as well as the location and neighborhood (including a street map showing the location of the appraised property and comparable sales) to back up the value determination
  
  
• An analysis and conclusions about the property’s value based on the appraiser’s observations
  
  
• An explanation on how the square footage was calculated
  
  
• Any other special instructions or requests from the lender or other agencies

While most of us would be tempted to just scan the report for the value and move on, it’s important to pay attention to the details in the event that you will need to challenge any of the report’s findings. For example, if the room count or square footage is off, or if any major updates were left out of the report, the seller would want to call out these discrepancies to ensure an accurate valuation of the property.

Appraisal Tips for Homebuyers

Since the appraisal directly impacts how much your lender will allow you to borrow, an appraisal that comes in below the contract price could mean trouble for the transaction. Homebuyers in this position may need more cash to close, could spend longer negotiating with the seller, or could lose out on the sale altogether.

Remember, you can challenge the appraisal if you feel the value is not accurate. It’s a good idea to go into the appraisal process familiar with the features of the home, like the square footage and whether or not updates have been made, as well as a familiarity of the neighborhood and comparable home prices.

On the other end of the spectrum, a much higher appraisal will give homebuyers more equity, which can help you avoid mortgage insurance.

Appraisal Tips for Sellers

If you’re the seller, the appraisal can determine how quickly and smoothly your sale proceeds. Chances are, you’ve already taken steps to make sure your home is at its best, like making repairs and updates, boosting curb appeal, and decluttering or staging your home. These tactics can also help ensure your home appraises at its best value.

Like the homebuyer, it’s beneficial to sellers to familiarize themselves with the selling prices of comparable homes in their neighborhood. If your home has unique features that set it apart, make sure to point these out to the appraiser, as they may not be immediately obvious. You can also significantly influence the appraisal by providing a list of upgrades or recent improvements you’ve made to the home. Be sure to let the appraiser know if you’ve installed a new roof, upgraded the kitchen, added a deck, or replaced the furnace or air conditioner, including receipts or contractor invoices when possible.

What to Know About Appraisals When Refinancing

When refinancing, you’ll need to make sure your home’s value hasn’t decreased since the time of purchase. Since mortgages are based on the home’s value at the time of the appraisal, any decrease in value could complicate your refinancing process.

If your home is worth less than its value when you bought it, you lose equity, and the new loan-to-value figure could affect your interest rate.

Appraisal FAQs

How much does a home appraisal cost, and who pays?

The cost of a home appraisal for a single family home is $500, according to a 2023 survey by the National Association of Realtors. Several factors can influence the cost, including the size of the home and the value and condition of the property. For example, larger homes and locations with higher living costs tend to cost more to appraise.

Buyers typically foot the bill for the appraisal, but some buyers will negotiate for the seller to pay instead.

How long does an appraisal take?

On average, appraisals can take seven to ten days to complete. Since appraisers must visit the property to perform the inspection, complete the research process, and prepare and deliver the report, the timeline will also depend on the appraiser’s workload and schedule.

Do I need to get a home appraisal?

Unless you’re planning to pay cash, lenders typically require an appraisal before they will sign off on a loan for a mortgage or refinancing. However, a home appraisal is recommended either way, so you can be sure you’re paying a fair price for the property.