Home Appraisal Tips for Buyers, Sellers, and Refinancers
Whether you’re buying, refinancing, or selling your house, a home appraisal is a key part of the process. Sellers, buyers, and refinancers can all benefit from home appraisal tips so you’ll want to take the time to understand how it works and how an appraiser determines a home’s value.
Keep reading or select a topic to learn more:
- Home appraisal basics
- What is a home appraisal?
- How a home's value is determined
- What is an appraisal report?
- Home appraisal tips
- What homebuyers need to know
- What sellers need to know
- What refinancers need to know
- Home appraisal process
- How long does an appraisal take?
- How much does an appraisal cost?
1. Home appraisal basics
What is a home appraisal?
A home appraisal is based on an unbiased, third-party professional’s opinion on a home’s value. A home appraisal is almost always used when buying or selling a home. It is also typically used when refinancing a home.
When buying or selling a house, a home appraisal is used to assess whether the home’s contract price is justified considering the home’s condition, location, and features.
In a refinancing situation, an appraisal lets the lender know that they’re not handing the borrower more money that the home is worth.
Your lender wants to make sure that you’re not overborrowing on a home loan. This is because the home serves as collateral for the mortgage. If the lender must put the home into foreclosure, they’ll have to sell the home to recoup the money they lent.
If you’re the borrower, you can also take comfort in an accurate appraisal. It means you’re not overpaying for a property, not spending more than you need to on a mortgage payment and could have an easier time selling the home if you choose to.
How a home's value is determined
Your lender will usually order the appraisal, since it’s in their best interest to get an accurate assessment of the home’s value. An appraisal typically costs a few hundred dollars, and the borrower generally pays the fee.
According to the Appraisal Institute, a qualified appraiser should be licensed or certified and be familiar with the local real estate market. Additionally, federal regulations state that the appraiser must be impartial and have no direct or even indirect interest in the transaction. This protects both the borrower and the lender.
The appraisal value is determined by a variety of factors:
- Recent sales of similar properties
- Current market trends
- The homes amenities
- Number of bathrooms and bedrooms
- Functionality of the floor plan
- Square footage
The appraiser must perform a complete visual inspection of both the interior and exterior of the property. They’ll note any adverse conditions to the home’s value, such as repairs.
What is an appraisal report?
Appraisers typically use the Uniform Residential Appraisal Report from Fannie May for single-family homes. The report covers the interior and exterior conditions of the home, the neighborhood, and comparable sales in the area. The appraiser will include an analysis and conclusion about the home’s value based on these observations.
The appraisal report must include:
- A street map showing the property and comparison sales used
- An exterior sketch of the property
- An explanation of how square footage was determined
- Photographs of the home and street
- Photographs of each property used for comparison
- Other relevant information used to determine fair market value, such as market sales, public land, and tax records
2. Home appraisal tips
What homebuyers need to know
If you’re buying a home, an appraisal will be one of the first steps in the closing process. If the appraisal value is at or above the contract price, the process proceeds as planned. If it is below the contract price, it can delay or derail the transaction.
If the price comes in below the contract price, don’t worry too much. Odds are that neither you nor the seller want the transaction to fall through. Use the low appraisal as a negotiating tool to get a fair price. After all, a lender won’t loan you or any other borrower more money that the home is worth.
If the seller is reluctant to lower the price, offer to get a second opinion through another appraiser. Appraisers are human and do make mistakes or have imperfect information from time to time. If the second appraisal comes back similar to the first, the seller may be more likely to negotiate with you on the contract price.
Learn more about what Bay Area homebuyers need to know in this helpful article
What sellers need to know
If you’re selling a home and the appraisal comes in at or above the contract price, great news! You should be able to proceed with the sale.
However, if you get a low appraisal on your home, you might need to lower the price. Lenders aren’t going to loan potential buyers more money than the home is worth.
If the area surrounding your home has seen distressed sales recently, that can lower the value of the appraisal. If you feel that your home has been unfairly affected by foreclosures or short sales, you can try to make a case to the appraiser that your home is worth more based on its condition compared to those other properties.
What refinancers need to know
A low appraisal can prevent you from refinancing a conventional mortgage. The home needs to be appraised at or above the amount you want to refinance.
If your existing mortgage is an FHA mortgage, you can refinance without an appraisal through the FHA streamline program.
3. Home appraisal process
How long does an appraisal take?
On average, the appraisal process takes 7 to 10 days. This gives the appraiser the time to visit the property, evaluate the exterior and interior, measure the square footage, and assess the home’s features and fixtures.
The appraiser will also compare the home to similar properties recently sold in the neighborhood. After all of this, they’ll write their appraisal report.
The amount of time it takes for the entire process varies based on the complexity of the inspection and report, as well as the appraiser’s workload and schedule.
What does a home appraisal cost?
Home appraisals typically cost between $300 - $450. The home’s location, size, and condition can all affect the cost.
Appraisers should work on either a flat fee or hourly basis. If they expect to be paid a percentage of the home’s value, you should consider this a warning sign. It could be an indication of an unethical appraiser.
If you’re buying, refinancing, or selling a home, you’ll have to go through the appraisal process. Since this will affect how much you can borrow or how much you can ask for your property, you’ll want to take the time to understand how everything works.
If you have questions about the appraisal process, or just about home loans in the Bay Area, our Real Estate Loan Officers will be happy to answer your questions.
You can also check out other articles about buying a home here in our Learning Center.