It’s possible that your home appraisal will be a key part of the process, whether you are buying a house or refinancing your mortgage. To make the right financial decisions, it is important to know how much a property is worth.

Learn more about home appraisals, their cost and how to get one.

What is a home appraisal?

A home appraisal, which is a type of valuation that a real estate appraiser uses to determine the fair market value for a house, is common. A home appraisal is a neutral assessment of the property’s worth, comparing it to other homes that have recently sold in the same region.

Appraisals help answer the question: “How much does my house cost?” Lenders and buyers are protected by appraisals. Buyers don’t have to pay more for the house than it is worth.

Here are some things that appraisers will look at and consider in a home appraisal.

  • Condition of the house overall
  • The age and the location of your home
  • Any improvements made to increase value
  • Average values for similar properties in the area

Who Pays for the Appraisal?

Although most mortgage lenders will arrange the appraisal, potential buyers must pay for it. Buyers can choose to pay upfront or the cost of an appraisal.

A buyer might be able, depending on the property’s market, to ask that the seller pay the appraisal fee during negotiations. However, this is rare and only a home seller will do it to sweeten the deal.

Common Types Of Home Appraisals

The type of appraisal that you need to obtain for your home depends on your financial situation and your lender. The advancement of technology means that there are many options available for home appraisals. This reduces the cost and makes the appraisal process more efficient.

Here are some examples of common home appraisals.

Drive-By Appraisal

A drive-by appraisal, also known as a summary appraiser, is a type of appraisal that does not involve the inspection of an entire property. Instead, the appraiser will focus on the home’s exterior in order to determine its worth. To estimate the market value of a home, an appraiser will most likely use public records or other data points.

Both the Federal Housing Administration and the Department of Veterans Affairs allow drive-by appraisals to be completed for most refinances. Some home purchases are also possible due to the COVID-19 pandemic.

Hybrid Appraisal

Hybrid appraisals let appraisers complete their appraisal without ever visiting a home. A third party, such as an appraiser, or a real-estate agent, inspects the house in person. This information is added along with the appraiser’s research from public documents, the MLS (multiple listings service), and other resources in order to determine the home’s value.

Desktop Appraisal

Desktop Appraisals are becoming more popular. They’re similar to hybrid appraisals, but a third party is not allowed to visit the property in person. Appraisers using a desktop appraisal will often need to have access to property records, floor plans, and comparable houses. Rocket Mortgage (r-) does not offer desktop appraises at the moment.

Full Home Appraisal

A full appraisal is what most people think of when they think about home valuations. It’s the traditional, in-person assessment that involves an appraiser visiting and taking photos and measuring.

Who Pays the Home Appraisal Fee?

Although most mortgage lenders will schedule an appraisal, potential buyers must pay the appraisal fees. The closing costs include the appraisal cost. Buyers can pay upfront for the fee.

Buyers can ask that the seller pay for an appraisal during negotiations in case of a buyer’s market. This is rare and can only be requested by home sellers to sweeten the deal.

What do Home Appraisers Look for?

The job of the appraiser is to give a fair market value for a property. This includes identifying potential problems or small repairs.

Here are some things that an appraiser will consider when assessing a home’s value:

  • Hazards to safety and health
  • The home’s structural integrity
  • The condition of your home
  • Visible defects
  • Important improvements or home upgrades that add value
  • Any conditions imposed by the lender

Appraisers are also allowed to order any inspections they feel is necessary. When there are obvious signs of potential issues, these inspections can include roof, pest or water inspections. If conditions are found that do not meet the lender’s standards, the buyer will need to have them corrected before they can be moved in.

What A House Assessment Means for You Home Purchase

An appraisal of your home is crucial in the home purchase process. An appraisal will tell lenders how much your mortgage loan amount. Mortgage lenders and banks won’t approve loans that exceed the appraised value.

Let’s examine the possible outcomes of an appraisal. Is it a higher or lower value than expected? What does this mean for buyers?

The Value is higher than expected

Home buyers are thrilled when their home appraised comes back higher that they had expected. The home buyer will get a better deal than expected and also have more equity.

Let’s assume that the buyer and seller agree to a purchase price for $150,000. The home was appraised for $165,000. Although the buyer will still be able to purchase the home for $150,000 they can now move in with at minimum $15,000 equity. The lender will loan only the value of the home and the process can be continued to the closing table.

These cases are not typical. The seller is not informed that their home was appraised for more than the asking value. So they are not able to ask for more money (which would violate the purchase agreement) and back out of the deal to buy the home later.

The Value Is Lower than Expected

Low appraisals can, at best, stop a buyer from receiving a loan. Low appraisals can slow down home-buying. A low appraisal can cause buyers who rely on mortgage financing to have difficulty because lenders are not able to give more than the property is worth.

But don’t panic. You may have some options if the appraised price is lower that you expected. This applies regardless of whether you’re refinancing, buying, or selling your home. Below are some options to help you deal with a low valuation of your home.

  • Negotiate with the seller the price of your home
  • Pay the difference out of your pocket
  • Get out of the deal

How long does an appraisal last?

Appraisal valuations are subject to changing market conditions, and the condition of the property at appraisal. Home appraisals don’t last forever. FHA loans and VA loans have a 180-day validity, while home appraisals can last for 120 (four months), six months (6 months) for most. A second home appraisal is required if your closing date has passed.

Because market conditions change, appraisals are only good for a limited time. If the real estate market is volatile, home sales 6 months back may look drastically different to recent sales. An extension may be granted for your appraisal. However, it is rare and only available to eligible borrowers.

FAQ Home Appraisals

Home appraisals can be very important, regardless of whether you are a first-time buyer or an investor in real estate. Let’s examine some of the most common questions regarding home appraisals.

What is the difference in a home appraisal and home inspection?

The difference between the two is that lenders require home inspections while recommendations for home inspections are not required. While they are not required, home buyers must arrange and schedule a house inspection. The lender will usually handle everything necessary for a home valuation. Also, home appraisals can determine a home’s value while home inspections can determine the condition of a home.

How can buyers prepare to have an appraisal performed?

Buyers don’t have much time to prepare for an appraisal. Appraisers will evaluate the condition of a house and look out for any areas that need repair.

How can sellers prepare to have an appraisal performed?

If you are selling your home, you want it to appraise for the exact amount or more than the buyer has agreed. Preparing for an appraisal is easy. Make a list if possible of the improvements you have made to your home to add value. Also, make a list if you have received multiple offers on the house. For a more appealing curb appeal, consider decluttering and cleaning out your exterior. Also, be sure to crating your pets for the appraisal.

Can sellers attend the appraisal?

Yes. It’s highly recommended. The seller is allowed to accompany an appraiser during their walkthrough. You can also point out any unique features, upgrades, or improvements.

How can I lower the cost of my home appraisal?

Home buyers cannot shop around in search of a lower home appraiser cost. Both buyers and lenders cannot choose from a single appraiser, or choose one solely based on price.

Home appraisals help home buyers and lenders

Lenders and buyers alike need to know the importance of home appraisals when considering a real estate transaction. A home appraisal is an essential step for homeowners who are looking to finance their home with a mortgage. An appraisal of your home can help you determine the value of your loan.