Appraisals are almost always a required part of the home buying and refinancing process. If you’re buying a home, your lender will order an appraisal of the property to ensure you don’t overpay for the home. If you’re refinancing, an appraisal is needed to ensure that you have enough equity to borrow against.
Let’s take a look at what an appraisal is, why lenders require them and some tips for sellers, refinancers and buyers.
What Does A Home Appraisal Determine?
A home appraisal is an unbiased estimate of what a home is worth. You might hear your real estate agent or lender refer to this estimate as the fair market value of the property. Lenders require an appraisal because they can’t lend more money than the property is worth.
Home appraisers are licensed professionals who assess real estate and calculate the worth of a specific property. The appraiser doesn’t work for the lender, and they don’t work for you. By law, they’re required to be a neutral third party in the mortgage transaction. This ensures they’re not biased toward any of the other parties involved.
Appraisers consider factors like the home’s location, size and living condition when determining the value. Your appraiser won’t be assessing your home based on your furnishings or paint colors. Instead, they’ll be looking at your home’s structure, appliances and fixtures to make sure there aren’t any defects.
The appraisal isn’t the same thing as the home inspection. A home inspector’s primary job is to protect the buyer by identifying any problems the home may have. They’ll test outlets, flush toilets and make sure appliances are in working order, so you know what repairs need to be made. The appraiser, on the other hand, is simply assessing the condition to determine a fair price for the home.
What Happens During A Home Appraisal?
First, the appraiser visits the home to inspect the property. During this inspection, they’ll walk through the home and take pictures and measurements of each room. They’ll also make notes about the condition and features of the house.
Next, the appraiser will select comparable properties to compare the home to. When choosing comparable properties (sometimes called real estate comps), they look for homes similar in location, size and features to the one they’re appraising. The comparable homes usually need to be within a mile of the property (except in rural areas), and they need to have sold within the past 6 months.
Home Purchase Appraisal Vs. Refinance Appraisal
When going through the refinance process, your lender will order a refinance appraisal, which is slightly different from a standard home appraisal. This step is required because your lender wants to ensure your home’s value is accurate for the new mortgage. However, they won’t focus on broken appliances or fixtures in the house as the lender only needs the fair market value to continue finalizing your refinance.
Tips For A Home Appraisal
No matter if you’re a buyer, seller or refinancer, there are plenty of ways you can prepare for a home appraisal. While you might feel like you won’t be able to make much of a difference, the following tips could help streamline this crucial process.
Home Appraisal Tips For Sellers
As a current homeowner, you’ll be able to make the most significant impact on the estimated value of your property. Consider completing the following tasks to avoid getting a low appraisal.
1. Get Your Own Assessment
Before you have a licensed appraiser visit your home, you can ask a real estate agent to tour the property. They’ll be able to look at each room objectively and provide you with ideas for possible improvements.
It’s also a good time to double-check health and safety features, like smoke and carbon monoxide detectors, security systems, cameras or any fireplaces that may be in the home. Make sure to run your HVAC system as well and get it serviced by a professional technician, if you haven’t done so already.
2. Research Possible Comparables
If you haven’t already researched the local real estate market, now is a perfect time. Take the opportunity to look at public records in your local assessor’s office for any recent sales that took place in the last 6 months.
There’s a chance your agent has already done this when they created a comparative market analysis (CMA). So, if you’re having a hard time finding similar properties, you could ask them to provide you with some MLS listings to look at.
3. Complete Small Repairs
Since you’re currently in the process of selling your home, there’s no need for you to make major repairs unless the buyers require it after the inspection. In most cases, you can primarily focus on aesthetics at this point in the appraisal process.
Your goal should be to make the home look spotless. That could mean painting scuffs marks on the trim, tightening crooked handles and knobs, patching holes in the wall, emptying the gutters or even power washing the siding. Whatever you do to make the home feel well-maintained could increase the appraised value in the long run.
4. Do A Deep Clean
Besides repairing minor defects, you should also tidy and declutter your home. Removing extra pieces of furniture or putting away unnecessary items can help your house feel bigger, no matter what its square footage is.
Countertops should be cleared off and polished or resealed. You can hang up new artwork or mirrors to reflect the sunlight in darker rooms. If your curtains are looking dingy, you should also replace them. As long as you’re able to create a bright and clean home, the appraiser will be able to better see and appreciate the property’s unique features.
5. Make A List Of Offers
If you received multiple offers on your house, you could use them as evidence of your home’s current value. Getting several bids shows that your property’s sale price was appropriate for your area, which may help the appraiser determine its present worth.
Home Appraisal Tips For Refinancers
Even though you’re not selling your home, it doesn’t mean you should skip preparing for the appraiser’s visit. The higher the fair market value of your home, the more equity you can use for your refinance. That’s why it’s crucial you use the following tips to make sure your home is reasonably assessed.
1. Provide A Record Of Upgrades
Making home improvements increases your property’s value, raising your home’s appraisal value. However, not all renovations are obvious, so it might be beneficial to provide the appraiser with a record of completed upgrades.
When creating the list, include some additional details for each change, like the cost of the project, building permit reference numbers and dates for when the work was done. This information will make the appraiser’s job easier and speed up the process.
2. Be Available For Questions
Once the appraiser comes to your house, you should make sure you’re free to speak with them. It’s common for appraisers to have questions about design features or the functionality of home systems.
But keep in mind that you shouldn’t try to direct the appraiser to look at specific aspects of the home or prevent them from seeing certain areas. They’re there to inspect your property thoroughly and complete the appraisal, so it’s better to let them work at their own pace.
3. Stage To Sell
Although you’re not selling your home, you should still prepare for the appraisal like you are. That means you’ll need to stage your home to look its very best.
As we mentioned before, you should try to remove as many distractions as possible. This could be achieved by rearranging furniture, cleaning up the bookshelves or even changing your area rugs. If you have any pet-related items or children’s toys scattered around the yard, you might want to tuck those away, as well. The more curb appeal your home has, the better it is for your appraisal.
Home Appraisal Tips For Buyers
As a buyer, you hope that your prospective new home will have an appraisal value that matches or is higher than the purchase price you agreed to pay. Unfortunately, if the property receives a low appraisal, you may have to negotiate with the sellers for a lower price or increase your down payment.
Thankfully, there are a few options for preparing for this step of the home buying process that will hopefully help you avoid running into this problem.
1. Craft Your Offer Carefully
In a seller’s market, it’s easy to get carried away and submit an offer that is the maximum you can afford, but sometimes this strategy can backfire when it comes time for your lender to assess the property.
Before you put in an offer, first research the local housing market and previous home sales in the neighborhood. If the purchase price you’re considering is much higher than the average sold prices from the previous months, you might want to consider starting with a more modest dollar amount.
2. Dispute An Inaccurate Appraisal
In rare situations, you may be able to dispute the appraisal if the valuation was done incorrectly. For example, maybe the appraiser didn’t see all of the property or the comps they used were too far away. Either of these issues could mean your lender needs to appeal the appraisal and start the process over again.
Talk to your real estate agent first and see if they have any explanation for the discrepancy. If they don’t, you may need to speak with your lender to get additional information. From there, they can contact the appraiser and schedule a new appointment to reassess the home.
3. Stay Open-Minded
Sometimes a home doesn’t appraise for the amount that was expected. Rarely it’s caused by an error, but most of the time it’s because the appraiser wasn’t able to justify a higher value.
While this can be a tough situation, it happens for a good reason. Appraisals are required by lenders because they protect you from paying too much for a property. So, if the house you wanted has too low of a value, your best option may be walking away and looking for a home that better fits you and your family.
