Home Appraisal Process: What You Need To Know When Buying A Home
What is a Home Appraisal?
A home appraisal is an unbiased report on the worth of a house in the fair market, performed by a trained and licensed individual. Appraisals are needed to ensure the home buyer, the home seller, and the mortgage lender receive the accurate and true value of the real estate in question.
In most real estate transactions you are able to choose your agent and lender, but you cannot choose your appraiser. The appraiser must be chosen by your lender, so there is a level of independence from both the buyer and the seller. In order to ensure that appraisals are impartial, the Appraisal Independence Requirements (AIR) prohibits a lender’s loan production staff from having direct contact with, or influence upon, any appraisers.
To reduce the risk of violating AIR, many lenders now hire appraisers by way of appraisal management companies. These companies work with many residential appraisers in order to cover a more diverse housing market, as well as reduce the risk of improper influence!
How Does an Appraisal Help Me?
An accurate appraisal has the power to protect home sellers, homebuyers, and mortgage lenders. Therefore, it is important to make sure that a qualified, independent appraiser evaluates your potential home.
Both appraisers and appraisal management companies are licensed by individual states, and are regulated at both the state and federal level. For example, the Dodd-Frank Wall Street Reform and Consumer Protection Act ensures that real estate appraisers make their decisions based on their own knowledge and judgement, without pressure from lenders or other individuals!
The Appraisal Process
After an offer is accepted by the seller of a home, the appraisal process can begin:
Step 1: The lender will find and arrange an appraiser for the property.
- It is ultimately up to the buyer to fund the home appraisal. Generally speaking, it may cost anywhere between $450-$1000 depending on the size and location of the property.
Step 2: The appraiser will come out to the home at a set time and date to look at the entire property. This in-person part of the process will generally take an hour or two, but fully depends on the size and condition of the property.
- The appraiser will measure the square footage and check the number of bedrooms and bathrooms in the home, and compare them with local housing records to ensure accuracy.
- They will then check the status of all major systems in the home, including plumbing, heating and the home’s structure, looking for anything that may be damaged or otherwise change the value of the property.
- The appraiser will then look for home improvements and recent upgrades that may positively affect the value. It is important to note that not everything the seller sees as an upgrade will actually increase the value, as remodeling and other upgrades may not hold universal value (i.e. a swimming pool may be nice, but because of the costs of upkeep it may not positively affect the value!)
Step 3: The appraiser will then look at similar homes that have sold in the general area, or even in the specific neighborhood or subdivision. These “comparables” will generally be of the same size, style and age as the home in question, and will have been sold in the past 3-6 months.
Step 4: The last step for the appraiser is creating a Final Report of Value. This report will provide the buyer and lender with a complete analysis of the home, and will outline how the appraiser calculated the the final value.
This report typically includes:
- Size and overall condition of the property
- Any serious structural issues, such as cracked foundations, wet basements, and roofing or windows that need replaced
- Notes on permanent fixtures such as lights, ceiling fans, faucets and plumbing
- Any updates to the home, such as remodeled kitchens or bathrooms
- Notes on the surrounding area, including both positive and negative features
- Pictures and maps of the property, both inside and out
- A detailed market analysis, including recent sales of comparable homes
Once the buyer and lender receive the Final Report of Value, it is very important that it is scoured for accuracy. If there are portions that conflict with the initial home inspection, or the comparable homes seem off, it can be brought up and looked over again. It is very important that this information is correct, as completing the home buying process relies on it!
Once the appraisal is accepted as correct, the lender can determine a fair loan amount and the buyer is on their way to owning their dream home!
We hope that this guide will prove very useful for you during the home appraisal process. If you have any questions about home appraisals that we did not cover, or would just like to chat about your home buying goals, give us a call at 303.847.1868 or schedule your free home buying consultation online!