How do appraisals

Because the appraisal primarily protects the lender's interests, the lender will usually order the appraisal. An appraisal costs several hundred dollars and, generally, the borrower pays this fee.

According to the Appraisal Institute, an association of professional real estate appraisers, a qualified appraiser should be licensed or certified—as required in all 50 states—and be familiar with the local area.

Per federal regulations, the appraiser must be impartial and have no direct or indirect interest in the transaction. A property's appraisal value is influenced by recent sales of similar properties and by current market trends.

The home's amenities, the number of bedrooms and bathrooms, floor plan functionality, and square footage are also key factors in assessing the home's value. The appraiser must do a complete visual inspection of the interior and exterior and note any conditions that adversely affect the property's value, such as needed repairs. The report asks the appraiser to describe the interior and exterior of the property, the neighborhood, and nearby comparable sales.

The appraiser then provides an analysis and conclusions about the property's value based on their observations. The report must include:. If the appraisal comes in at or above the contract price, the transaction proceeds as planned. If the appraisal comes in below the contract price, however, it can delay or derail the transaction.

Chances are, neither you nor the seller wants the transaction to fall through. As the buyer, you have an advantage, in that a low appraisal can serve as a negotiating tool to convince the seller to lower the price. The bank won't lend you or any other prospective buyer more than the home is worth. While appraisals help buyers avoid overpaying for homes, a seller may feel that a low appraisal is inaccurate and be reluctant to drop the price.

If a bad appraisal is standing between you and your home purchase or sale, look into getting a second opinion via another appraisal by a different person.

Appraisers can make mistakes or have imperfect information. Better yet, present a factual case for a higher value to the original appraiser. They may agree with you and revise the evaluation. Federal guidelines intended to eliminate the inflated appraisal values that contributed to the housing crisis sometimes cause appraisals to come in below fair market value and can make low appraisals difficult to challenge. Holding out for an all-cash buyer who doesn't require an appraisal as a condition of completing the transaction is unlikely to net you a higher sales price.

No one wants to overpay for a home. Unfortunately, if your surrounding area has experienced recent distressed sales , that can lower your home's appraisal value. Getting an appraisal is also a required step when giving a home to a family member as a gift of equity. Real estate appraisers consider many details to determine a home's value.

The appraiser will do market research and usually visit the home to examine the property. Here are some of the factors they take into account:.

Sale prices of comparable homes recently sold in the area. Types of interior and exterior materials. Amenities, such as fireplaces or decks. Both an appraisal and a home inspection are important in the homebuying process , but they serve different purposes.

A home inspection is for evaluating a home's condition. The inspector walks through and checks the structure from top to bottom, including the walls, ceilings, floors, windows and doors, as well as the mechanical and electrical systems, appliances and plumbing.

After looking at everything, the inspector provides an objective report, including repair recommendations. An appraisal is an assessment of home value. The appraiser considers the home's condition as part of the analysis of how much the property is worth, as well as other factors, such as the local housing market.

The appraiser doesn't make recommendations for repairs. As the mortgage borrower, you have a right to a free copy of the appraisal report at least three days before the loan closes. It's a good idea to read the report to check for accuracy.

Let the lender know if you find errors and think the estimated value is wrong. Any pertinent information you provide could lead the appraiser to reevaluate. You may also ask the lender for a second appraisal.

Stay connected. Related Blog Articles. Considering Home Ownership? Comments 0. Open Your Account - Anytime, Anywhere. Download apps. Join our community. Leaving FSCB. OK Cancel. A home appraisal is a value analysis of your property from a certified or licensed appraiser hired by the lender during the home purchase or refinance process. The appraisal is also important to the buyer and seller because an appraisal value that comes in lower than the agreed-upon price could prompt a buyer to reopen price negotiations.

The appraisal takes place as early as possible after the two parties agree on a price, to allow enough time to schedule a property visit and production of the report. A lender will select a home appraiser who will contact the seller to set a time and date for a home visit. A uniform residential appraisal report—which generally resembles this template from Fannie Mae , a government-sponsored company that backs many mortgages—usually relies on these factors:.

An appraisal inspection. Traditionally, appraisers review both the exterior and interior of a home to make sure it is in good structural shape, to confirm there are no safety issues, to make note of the number of rooms and to see if there have been major upgrades since the last real estate transaction.

The appraiser usually takes photos of the various parts of the home during the walk-through. The appraiser handles the home visit individually, but homeowners might be present, especially if they are still living in the home. Appraisal visits for government-backed loans can differ from those for conventional loans. For example, an appraiser who is compiling a report for an FHA-backed loan needs to test utilities and appliances to make sure they are in working order, per government rules.

VA loans have a similar list of requirements for an appraisal. Concerns about the coronavirus have changed the appraisal process , at least temporarily. The most relevant ones have many of the same characteristics as the home in question and are in the neighborhood or one nearby. To get comparative information, appraisers typically review government records as well as home sale information from the Multiple Listing Service MLS. MLS is a real estate database that includes home listing and sales information posted by real estate professionals.

Although the database is technically private, much of the information is available online for free. Valuation approach. The appraiser could decide that the sales comparison approach is the most appropriate way to assess value or could take a cost-based approach, which is an estimate of what the cost would be to build the home today combined with the value of the land. Home appraisals are different from home inspections because they are conducted to determine the value of a home for the benefit of the lender.

During the closing process , the buyer will find and hire a home inspector, who will conduct a thorough review of each part of the home, develop a detailed report covering the interior and exterior and make recommendations about what might need to be fixed or updated. Repairs could be made or paid for by the seller, or the two sides could negotiate compensation for the buyer to fix any issues after move-in. The home inspection does not involve lenders at all, unless the buyer decides to cancel the sales contract because of the results of the inspection.