Home Appraisal Essentials: What Every Buyer and Seller Must Know

Home Appraisal Essentials: What Every Buyer and Seller Must Know

Learn about home appraisals, including the process, types, costs, and preparation tips, to ensure a smooth real estate transaction whether buying, selling, or refinancing.

Marcio VasconcelosMarcio Vasconcelos

Published on May 15, 2024

Whether you're buying, selling, or refinancing a property, a home appraisal is an essential component of the transaction. This process involves obtaining an unbiased professional assessment of the property's value, which is crucial before making any significant financial decisions regarding the property. An appraisal can feel daunting, particularly if you're unfamiliar with the factors involved.

A qualified appraiser evaluates the home's worth by inspecting it in person, analyzing recent sales of comparable properties, and considering current market trends. They also look at specific details such as the home's size, condition, layout, and features. This detailed report is necessary anytime a mortgage is part of the transaction, ensuring that all parties have a clear and accurate understanding of the home's market value. 

Here, we will explore everything you need to know about home appraisals, including the process, types, cost, and how to prepare for one, whether you're a buyer or a seller.

What Does It Mean to Do an Appraisal on a House?

An appraisal is a professional assessor's evaluation of a property's market value, considering factors such as comparable recent sales of nearby homes, the property’s condition, age, location, and specific features like the number of bathrooms. This assessment confirms that the home’s listed price accurately reflects its true value. This is crucial for securing financing, as lenders rely on appraisals to ensure that the loan amount does not exceed the property's actual worth, thereby preventing them from lending more money than the home is valued.

How Does the Home Appraisal Process Work and How Much Does It Cost?

The home appraisal process typically begins once a home is under contract, and a lender is involved to finance the purchase. The lender will often choose a qualified appraiser to visit the property and conduct the appraisal. The appraiser will inspect the property, considering factors like the size of the lot, condition of the home, improvements, and amenities. They will also compare the property to similar homes that have recently sold in the area. Understanding how long does an appraisal take is crucial; generally, it ranges from a few days to a couple of weeks depending on the complexity of the appraisal and the property itself.

The cost of a home appraisal can vary depending on the location, size, and complexity of the property, but typically ranges from $300 to $500. This fee is usually paid by the borrower as part of the closing costs.

Types Of Home Appraisals

Home Appraisal
Image: Freepik

The type of home appraisal required can vary depending on your specific situation and the lender involved. The most commonly utilized is the full appraisal, where an appraiser conducts a thorough on-site inspection of the property. Advances in technology have helped make this process more efficient, reducing both the time and cost involved.

Among the prevalent types of home appraisals are:

Full Home Appraisal:

This traditional form involves a detailed, in-person evaluation of the property. The appraiser physically visits the property, takes photographs, measures the premises, and reviews public records and comparable sales in the neighborhood to determine its market value.

Drive-By Appraisal:

Also known as a summary appraisal, this method involves external-only inspection. The appraiser evaluates the property from the outside and uses public records and other data sources to estimate its market value.

Hybrid Appraisal:

In this approach, the appraisal is completed without the primary appraiser visiting the property. Instead, an in-person inspection is conducted by a third party, such as another appraiser or a qualified real estate agent. The findings are then combined with the appraiser’s research from public records, the MLS, and other sources to assess the home's value.

Desktop Appraisal:

Gaining in popularity, desktop appraisals do not require a visit to the property by any party. Appraisers rely on property records, floor plans, and real estate comparables to estimate a home's value from their desk.

What Do Home Appraisers Look For?

When conducting a home appraisal, appraisers evaluate several critical aspects of a property to determine its market value. These factors are meticulously inspected to ensure a comprehensive assessment:

Exterior and Interior Condition:

Appraisers scrutinize the property's structural integrity, looking for any signs of foundational issues, roof condition, and other structural elements that affect durability and safety. They also note recent upgrades such as new roofing, updated windows, or renovations that can significantly impact the property's value. The overall maintenance and upkeep of the property are also considered, as a well-maintained home typically suggests a higher value.

Home Size and Usable Space:

The total square footage of the home is a primary factor in its appraisal value. Larger homes generally command higher prices in the market. The number of bedrooms and bathrooms also plays a critical role, as they directly contribute to the functionality and appeal of the home. The layout or floor plan is also important; spaces that are efficiently designed and flow logically from one area to another tend to be more desirable.

Location:

The property's location is perhaps one of the most influential factors in its valuation. Appraisers evaluate the proximity to essential amenities like shopping centers, entertainment venues, parks, and public transportation. The quality of local schools can greatly affect a property's value, as homes in areas with sought-after schools often command higher prices. Additionally, the overall desirability of the neighborhood, including safety, community services, and future development plans, are assessed.

Comparative Market Analysis (CMA):

Appraisers perform a comparative market analysis to establish the most accurate value of the property. This involves comparing the subject home to similar properties in the area that have recently sold. Factors considered include the sale price of these homes, as well as their condition, size, style, and location. Adjustments may be made based on differences between the properties to ensure a fair market value is determined.

What Negatively Affects Home Appraisal?

Several factors can detrimentally influence a home appraisal, potentially lowering the assessed value of a property. Understanding these factors can help homeowners and potential buyers anticipate challenges in the valuation process:

Poor Maintenance:

The condition of the property is a significant factor in an appraisal. Neglected maintenance issues such as a leaky roof, cracked foundations, peeling paint, or malfunctioning HVAC systems can drastically reduce a home's market value. These defects suggest to an appraiser (and potential buyers) that there might be deeper, unseen problems that could incur significant costs in the future.

Outdated Kitchens and Bathrooms:

Kitchens and bathrooms are critical in determining a home's appeal and value. Modern, updated kitchens and bathrooms can significantly increase a property's market value, while outdated designs and fixtures can detract from it. Buyers typically look for homes that require minimal renovations, and outdated spaces can be a major turnoff, thus impacting the appraisal negatively.

Unfavorable Market Conditions:

The broader real estate market plays a crucial role in the appraisal of a home. If the local market is experiencing a downturn, perhaps due to economic factors, increased crime rates, or an influx of foreclosures, property values across the board can be affected. An appraiser must consider these conditions when evaluating a property, as they aim to estimate the most probable price a property would fetch in a normal and reasonable market condition.

Overpersonalization:

While personal touches make a home special to the owner, highly customized designs, bold color choices, or unconventional landscaping can limit its appeal to the general market. Most buyers prefer a neutral palette to envision themselves in the space, and deviations from this can lead to lower appraisals. For instance, an elaborately themed children's room or an exotic garden might need to be modified back to a more universally appealing state to attract a broader range of buyers.

How Should I Prepare for a Home Appraisal?

Preparing for a home appraisal is a critical step whether you're selling or buying a home, as it can significantly influence the valuation of the property. Here's how both sellers and buyers can effectively prepare and be sure to consult a comprehensive home appraisal checklist to ensure you cover all the bases,

If You're a Seller:

Enhance Curb Appeal:

First impressions matter greatly in appraisals. Boosting your home’s curb appeal can make a significant difference in its perceived value. Simple actions like cleaning the yard, painting the fence, trimming hedges, and planting flowers can make the property appear well-maintained and inviting.

Make Necessary Repairs:

Addressing obvious defects is crucial as they can lower the appraisal value. This includes fixing any plumbing issues, patching holes or cracks in the walls, replacing broken tiles, and ensuring all electrical fixtures are in working order. These repairs can prevent the appraiser from noting down negative adjustments that could affect the overall valuation.

Document Upgrades and Improvements:

If you've made any improvements to the property, compile a detailed list including the nature of each upgrade, its approximate cost, and the date it was completed. Whether it’s a renovated kitchen, a new roof, or an added deck, providing this information can help the appraiser understand the extent and value of the improvements, potentially boosting the property’s appraisal value.

If You're a Buyer:

Review Comparable Sales:

Before the appraisal, familiarize yourself with the local market by reviewing recent sales of comparable properties. This knowledge will help you understand the appraisal value and ensure it aligns with current market conditions. If the appraisal comes in lower or higher than expected, you'll be better prepared to discuss these discrepancies with the appraiser or renegotiate the property price.

Be Present During the Appraisal:

Attending the appraisal, if possible, allows you to observe the process, ask questions, and provide any additional information that might help in the assessment. Being present also helps ensure that the appraiser has taken note of all pertinent aspects of the property, which can influence the final appraisal report.

People also ask 

Can I dispute a home appraisal?

Yes, if you believe the appraisal was conducted improperly or contains errors, you can request a review or get a second appraisal.

Does a clean house affect an appraisal?

Cleanliness per se doesn’t affect the appraisal, but a well-maintained home suggests good overall care.

What happens if the appraisal comes in low?

A low appraisal can affect the financing of a purchase. You may need to renegotiate the sale price, or the buyer might need to increase their down payment.

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