Home Appraisal Guide: Understanding the Home Appraisal Process

A home appraisal is the estimated value of a home property by a licensed appraiser. An appraisal is made by inspecting your home, taking into account factors including the square footage and the asking price of comparable properties in your home's neighborhood.

An appraisal is important for a mortgage lender—like a bank or a mortgage broker—to determine the value of the property that a borrower currently owns or is trying to buy. Common reasons for ordering a home appraisal include refinancing a home’s mortgage or securing a loan to buy a house. You might need a bank loan to help pay your mortgage or contribute to the down payment of a house.

Private mortgage lenders usually require a home appraisal to weigh the home’s value against the size of the loan to the homebuyer. Federal institutions like the Federal Housing Administration (FHA) or the US Department of Veteran’s Affairs also provide home loans, which require home appraisals as part of the application process.

There are several differences between a real estate appraisal and a home inspection, some of which include the following.

• Value vs. Condition: The purpose of a home appraisal is to determine an appraised value of the property, while a home inspection is to determine the home's condition. While the condition of a home can contribute to or detract from its value, a home appraiser and a home inspector are looking for slightly different things. A home inspector will look at the condition of the home more closely than the appraiser, often looking for foundational or structural abnormalities.
• Market Comparison: A home appraisal determines the fair market value of the home by comparing it with comparable homes on the real estate market. Home inspections do not take the market or comparable homes into consideration.
• Appraisals are mandatory for a loan: Home appraisals are a mandatory phase of the home buying process and as such the mortgage lender will schedule the appraisal. A home inspection is more for the benefit of the homeowner and is not mandatory to secure a loan from a lender.

Home appraisals are conducted by a licensed, third-party home appraiser. The lender is responsible for scheduling a home appraisal with an appraiser who has no connection to the lender, the buyer, or the seller. The homebuyer, homeowner, or loan borrower is responsible for the appraisal costs as part of the closing costs of the home. A home appraisal can take anywhere between 20 minutes to two hours, depending on the size of your home. Once the appraiser has made their valuation, the appraiser will write a written report containing the home’s appraisal value that outlines how the determination was made.

Home appraisals are used to secure a loan from a financial institution for a mortgage or down payment for a home purchase. They are ordered by the same financial institution when you’re refinancing your mortgage. Here is a brief overview of the process of a home appraisal.

1. 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. 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. 3. The appraiser writes a report. Your appraiser will write a full report describing what they found in the home assessment. They will also include data on the value of comparable properties in the area. They will assign a fair market value to the house.
4. 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 valuation of the house meets the agreed-upon purchase price, or is greater than the purchase price. The lender will compile a closing disclosure that enumerates your down payment, closing costs, or the terms of your mortgage.

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

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. 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. 2. Examine your desired home's state of repair. Examining the state of repair of your desired home can help you plan ahead and budget for necessary repairs or renovations.
3. 3. Assess the condition of your house. If you’re a homeowner looking to refinance your mortgage, you want to make sure that 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. 4. Provide documentation. Provide copies of your home's previous appraisals to the home appraiser, and keep documents of all home improvements made and the attached costs.

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