Home appraisals are an essential component of the home buying, selling, or refinancing process.
While it may seem like a small step in the bigger picture of buying or selling your home, an appraisal should not be overlooked or taken lightly.
If the appraiser decides the value is much lower than you had anticipated, the transaction between the buyer and seller might be canceled.
However, prior to an appraisal, the property owner can take some steps to improve the property.
Learn more about home appraisal steps, how you can prepare, and what to do if you get a lower-than-expected appraisal.
What is a home appraisal?
A home appraisal is simply a valuation of the property by someone who is authorized to give an estimate. A professional appraiser will determine the value of your property based on several factors.
An appraisal is part of the closing process when getting a mortgage loan, and part of the approval process for refinancing your loan.
If an appraiser determines the property value is at or above the contract price, the closing can proceed as usual. If it appraises at a lower value, the process might be delayed or terminated.
Appraisals are performed by licensed or certified appraisers who are familiar with the local area. According to the Appraisal Institute, an appraiser must provide objective, impartial, and unbiased opinions about the value of the property.
Why do you need an appraisal?
Mortgage loan officers require appraisals to ensure homeowners are not overborrowing on a loan.
Some refinance programs don’t require appraisals, so be sure to check with your loan officer when you’re refinancing to see if you need to get one.
How home values are determined
To determine a home’s value, the appraiser will put together a report of the property value based on:
- Current market trends
- Location and neighborhood conditions
- Recent sales of similar properties in the area
- Size of the home
- Property amenities
- Floor plan and number of bedrooms and bathrooms
- Visual inspection of interior and exterior
- Required repairs or suggested improvements
The full report will include maps, sketches, explanations, photos, and records and data from the surrounding area.
All these combined factors provide a full picture to a professional appraiser regarding the home’s value.
Home appraisal steps
Once a seller accepts an offer from a buyer and they enter a contract, a home inspection and appraisal are soon to follow. For refinancing, an appraisal takes place after application. The results of these appraisals determine the next steps.
How homeowners should prepare for an appraisal
Whether you’re looking to sell your home or refinance, there are certain ways you can spruce up your home to prepare for the appraisal.
While many aspects of an appraisal are out of your control, such as market trends, location, and recent sales of similar homes, making some necessary updates and repairs to the inside and outside of your property can improve the appraisal value.
Boost your appraisal value by:
- Fixing cracked ceilings and leaky faucets, patching the walls, and replacing broken windows
- Removing pests or infestations and cleaning or replacing old carpet
- Repairing broken garage doors and cracked sidewalks
- Tidying up the outside of the home and trimming or clearing out landscaping
- Replacing fixtures or other features that age your home
- Listing out recent improvements to share with the appraiser, such as a new roof, water heater, heating and cooling system, etc.
Make sure to let your appraiser know about road updates or new schools in your neighborhood as well.
What to do if you get a low appraisal
Appraisers don’t often make mistakes, but if you review the report and believe something is missing or inaccurate, you might consider presenting your strong refuting facts to the appraiser for a second look.
You also may opt to get a second opinion from another appraiser, but keep in mind that for a standard single-family home, appraisals cost around $300 to $500.
On the other hand, if you’re buying a home and the home appraises at a lower value, you can try to negotiate a lower selling price with the seller.
If you’re interested in all the factors that go into an appraisal, take a look at the Uniform Residential Appraisal Report that’s commonly used to evaluate properties.
How appraisals fit into the bigger picture
If you’re purchasing a home, your loan officer will order an appraisal after you’ve made an offer and signed a purchase agreement. The appraisal will confirm if the purchase price is accurate.
When refinancing a mortgage, the loan officer will order the appraisal after you’ve applied. The new loan will be approved if the home appraises at or above the amount you want to refinance.
If you’re buying a home with cash, no loan officer is involved so appraisals are not required. Even in these circumstances, though, you might want to get an appraisal anyway to make sure you’re not paying more than you should.
Ready to start the homebuying or refinance process?
Don’t worry if the steps in a home appraisal still seem confusing.
Your trusted Homefinity loan officer will be there along the way to offer guidance and inform you of next steps as you move through the process.