Updated: Aug 14
I've mentioned before that I was a nervous home buyer. And even looking back now, I understand why I felt that way. The number of moving pieces, roadblocks, and potential obstacles can be difficult to cope with.
One of the most stressful parts about the home buying process is the house appraisal process. If it goes well, you'll remove one of the largest barriers in your way to closing on your home. But if things go wrong, your appraisal could throw the entire prospect of buying the home out the window.
Today, I'm back to help you understand what home appraisers look for, as well as provide you with 4 tips to be best prepared.
Related: A Guide for First-Time Home Buyers
What is a home appraisal?
A home appraisal is a process in which a real estate appraiser comes out to a home or property in an attempt to decide the fair market value of a home. The real estate appraisal has a couple main purposes:
To protect your mortgage lender from letting you borrow more money than the home is intrinsically worth
To potentially set property tax rates
Home appraisers play an integral role in the home buying process, oftentimes acting as a liaison between home buyers and mortgage lenders nationwide. Buyers ultimately want their homes to be valued as highly as possible, while mortgage lenders want to make sure that they're loaning out money for a property with good value.
What do home appraisers do?
At the request of your lender, an appraiser will come out to evaluate the home and property that you're interested in buying.
Your appraiser will complete a number of tasks on your behalf, including:
Taking note of the home's/property's features, lot size, and dwelling
Compare the home's features to that of other homes in your area
Providing you a detailed report outlining the findings and estimated home value
The appraisal report is then oftentimes used by lenders, buyers, and sellers in an attempt to close a real estate transaction.
What does a house appraiser look for?
Home appraisers look at a number of things to help them decide on a fair market value of your home. Among those factors that an appraiser will take into consideration include:
The condition of the home
The home's/property's location
The size and floorplan of the house
Current real estate market in your area
Special home amenities
To help estimate the fair market value of a home, appraisers will look for comparable homes in your area with the same general characteristics of your house, including its location, age, number of bedrooms/bathrooms that have sold recently.
But for now, I want to provide more detail on each of the factors listed above.
1. The condition of the home
Among the most important factors impacting the value of your prospective house is the condition of it. While appraisers don't go into as much detail as inspectors do, they will evaluate a structure's integrity, maintenance needs, and required repairs to put a value on it.
The better the shape of a home and its underlying structures and systems, the higher an appraisal is likely to come in.
2. Your location
You've likely heard the mantra that real estate prices are all about location. And there is definitely some truth to this. When it came time to review my appraisal report, I noticed that the company used other recent home sales in my area as a basis for comparison in calculating my home's value.
And while every home is different, the presence of comps in your area does provide a great starting point to judge the value of a home.
3. Size and floorplan of your home
Ultimately, the size and layout of your home plays a role in determining its value. As a general rule of thumb, the larger the home, the more the home will be worth, though this may not always be the case.
Many home buyers don't realize that the floorplan of your home can also impact its value, particularly if it is a modern open concept that increases useable living space.
4. Current real estate market
Fair or unfair, the value of a home is tied to a number of external factors, including the health of a real estate market at any given point in time. For example, prevailing interest rates on mortgages, as well as whether you find yourself in a buyers' or sellers' market, will play a role.
Recent trending of property values and the forces of supply and demand, including inventory on the market, will all play a role.
5. Home features
Certain features of a home are more in demand among buyers. These things may have a positive impact on the value of a home. But if your appraiser also comes inside your home, he/she is trained to keep an eye out for high end materials and finishes, such as:
Hard wood or expensive tile flooring, like travertine
Depending on the specific home you're looking to buy, your home's layout may also play a role in determining the value.
6. Special home amenities
Your appraiser will also keep an eye out for special home amenities that will make a real difference in calculating the value of your new home. Certain amenities can either increase or detract from the value of your home, depending on your neighborhood and buyer preferences.
But generally, special amenities that may impact your appraisal include:
The presence of an in-ground swimming pool or spa
Any secondary structures on your property
How much does a home appraisal cost?
Though it may vary somewhat depending on where you live and what type of home/property you purchase, you can generally expect your appraisal to cost between $300 and $500 or so.
When I had my appraisal done last spring, I think it cost about $500 to appraise my home in Connecticut. If I remember correctly, my wife and I paid this fee as part of our closing costs, along with our down payment, lender fees, and other miscellaneous expenses.
My home appraisal experience
Like I mentioned, I was pretty nervous about getting my appraisal completed and out of the way. I had read about and heard a first-hand account about some home buyers that actually had their deals fall through as a result of problems with the home's valuation.
I didn't want to turn into the next story to make this list.
And luckily, I didn't.
But I did learn that, in the vast majority of real estate transactions, they go off without a hitch. To maximize the chances of a smooth process for you too, I encourage you to follow these four basic tips:
Don't pay over market price
Attend the appraisal
Do your own research
1. Don't pay over market price
If you want your appraisal to go smoothly, the easiest way to do so is to make sure the home you're buying has a fair price. Now, this can be really difficult to do in sellers' markets like we've experienced over the past few years, but in general, you'll want to do everything that you can to not overpay for a home.
2. Attend the appraisal
Now, I'll admit that I didn't follow my own advice here, but if I could do it over again, I would choose to attend my home appraisal. If I had, I would have been able to identify and work on any issues that could have arisen more quickly.
3. Do your own research
I recommend that every prospective home buyer does their own research to set themselves up for success in the appraisal process. Look at comparable homes in your area and take note of their:
4. Ask questions
My last piece of advice regarding the home appraisal process is to not be afraid to ask any questions about anything that you are unclear about. If you're unclear about why your appraiser has used a certain home as a comparison, for instance, don't be afraid to ask questions so that you can better understand the process. And if something seems wrong, don't be afraid to speak up.
Is an appraisal different from an inspection?
Home appraisals and inspections are two different exercises commonly completed as part of the home buying process. Inspections are usually not mandatory and are typically left up to the home buyer to contemplate.
Appraisals, on the other hand, are likely to be mandated by your home lender or bank.
There are more differences between appraisals and inspections, too.
For example, an inspection will likely go into far more detail than any appraisal activity will. When my wife and I had our new home inspected last spring, the inspector spent over four hours at the home testing out the home's systems, checking the viability of the structure, and estimating the useful life remaining on each feature of the home.
I appreciated this level of detail, especially as a personal finance expert who always wants to know how much money I'll need to perform maintenance, repairs, and updates on my home. Thanks to my home inspection, I now have a spreadsheet of when I can expect to need to perform repairs, along with their associated costs.
Compared to this, the appraisal honestly felt like more of a formality, as my wife and I didn't even have to be present for the meeting.
Home appraisals don't need to be as stressful an experience as I made it out to be. In fact, if you know exactly what an appraiser is looking for and follow the tips I've outlined here, it can be an easy process for you too!
I want to hear from you. Have you been through a stress-free appraisal?
Tell me in the comments below!
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