How Do Home Appraisals Work? What To Consider
Let’s say you want to buy a new house: how do you know the price isn’t too high? Or maybe you’re trying to sell your own property: can you figure out its market value? Unless you’re a seasoned real estate agent, it will take weeks or even months of research to find the answers. So, how about letting a pro handle the inspection? Yes, we’re talking about a home appraisal made by a licensed agent.
They’ll help determine the real value of the property by assessing the square footage, number of rooms, physical condition, and amenities. Without an appraisal, you’ll end up paying more for a house (as the buyer) or selling it at a lower price (as the owner). But how exactly do home appraisals work? How much do they cost? Are they mandatory? Let’s find out!
How Does It Work?
The main job of a home appraiser is to assess the value of a property by comparing its worth to that of comparable sales in the area. A licensed appraiser is often hired when a person is trying to refinance a mortgage or get a loan to buy a new house. On average, an experienced professional takes 1–2 hours to get the job done, or even less. It all starts with the lender ordering an appraisal. Once you transfer the funds, the expert will pay a visit.
That’s right—the company won’t cover the expenses. Appraisers make notes on the area, square footage, and amenities of the property. When they’re done, you’ll receive a detailed report with a fair market value for the dwelling. The final stage is when the lender approves or denies the loan. If the appraised value is lower than the selling price, most likely, you won’t get a loan. It needs to match (or be higher than) the agreed-upon price.
And here’s a quick look at what appraisers check in a property:
What Are the Different Types of Appraisals?
Back in the day, in-person appraisals were the only option on the table. Today, there are four different kinds of property assessment. Now, if you applied for a mortgage loan, the lender would choose the appraisal type—you won’t have to worry about any of that. Still, it’s important to know what you can expect when dealing with a certified home appraiser:
Where Is It Used?
Home appraisals are used in three cases. First, if you’re looking to buy a house and want to get a proper evaluation of its current value, a third-party appraiser will be able to do that for you. The same applies if you’re the seller and want to put the house for sale. Having your property appraised before the buyers line up is a good way of knowing roughly how much a potential client will pay for it. Appraisals also help when you’re trying to refinance.
That pretty much covers it. Now, home appraisals don’t require the buyer or the seller to be present during the evaluation. Still, we encourage you to find time and join the appraiser. It’s always better to talk to them in person instead of looking at a report on a piece of paper. It’s also worth mentioning that the appraiser has to come from a third party and have no ties to the seller, potential buyer, or the mortgage company offering a loan.
Preparing for an Appraisal
If you’re the buyer, you don’t have to do much as long as you’re happy with the asking price and are ready to communicate. Just wait for the appraiser to check everything and hit you back with a report. In contrast, as a seller, you must get everything ready before the “hunting party” arrives at your property. These steps will help get things in order and present the house in the best light:
Advantages of Appraisals
Disadvantages of Appraisals
Frequently Asked Questions (FAQs)
Are Home Appraisals Mandatory?
This depends on whether you’re planning on buying or selling a home. When the goal is to put up a property you own for sale, an appraisal is highly recommended, yet not obligated. In contrast, if you’re trying to buy a new home and you’re asking a mortgage company for a loan, the lender will order a home appraisal. This is done so that the company knows the current value of that property and doesn’t pay more than it should.
An appraisal won’t be necessary when paying in full in cash, though. Still, it would be great to save up a bit for a professional appraiser, even if you’re on a tight budget. The reason: they’ll help strike a better deal that will instantly cover the appraiser’s compensation and then some. Now, since 2019, houses that cost less than $400,000 don’t require an appraisal, but this only applies to specific scenarios.
How Much Does an Appraisal Cost?
In the US, the national average for a home appraisal is $310–$420, with most homeowners and sellers paying $350 for the service. The actual price depends on the size, complexity, and location of the property. The overall condition (older dwellings with construction issues take more time and effort to evaluate) and the time of the year (the fees are higher in winter) also matter.
For example, if you request an appraisal for a multifamily home in a busy area, they may charge up to $1,500. In contrast, a smaller single-family home will only cost $250–$300 to appraise. So, before you sign anything, get some quotes from local real estate companies. But, considering how expensive housing in the US is today, appraisals don’t cost that much.
Appraisal vs Inspection: What’s the Difference?
A home appraisal is a thorough evaluation of a property. The appraisal agent determines the value by comparing it to similar homes in the area. An inspection, in turn, focuses on the physical condition of the dwelling. These two terms are often used interchangeably; however, they are quite different. Roughly, home inspections cost the same as appraisals.
While an appraisal’s purpose is to reveal the value of the home, an inspection is all about understanding what condition it’s in. Inspectors check the heating, pumping, electrical, and air systems. Next, they move on to the attic and the basement and set eyes on every corner of the property. In contrast to appraisals, inspections are rarely required by mortgage lenders.
It doesn’t matter whether you’re trying to buy or sell a house. If you want to get the best offer, you’ll need a professional appraiser to determine the home’s value. Thankfully, property evaluation doesn’t cost a fortune, and most real estate appraisers will have a report ready for you in an hour or two. Besides, mortgage companies often request an appraisal to approve a loan.
Now, while it’s the real estate agents that do the heavy lifting, a home appraisal can be a bit stressful both for the homeowner and the potential buyer. So, it might be wise to talk to a real estate agent, get a scope on things, and bring everything in order before the appraiser arrives for the assessment.
Featured Image Credit: todd kent, Unsplash