Are you wondering about the home appraisal process? It is a question most homeowners ask themselves when they are facing one. The value of their property depends on this process, which makes it a significant concern.
Home appraisals are reasonably straightforward but being aware of the process can help homeowners prepare for them.
What is a House Appraisal?
A house appraisal is a process of evaluating a property and its surroundings to determine its value. Unlike an inspection, an appraisal doesn’t necessarily look for flaws and how to fix them.
Appraisals help set an accurate number value that buyers, sellers, and mortgage lenders can use to make important decisions.
» Home Appraisal: What you need to know about home appraisals in detail.
Types of Home Appraisals
There are different types of home appraisals that follow different processes. Before you know what’s involved in appraisals, but need to understand their types.
- Full Home Appraisal
- Drive-by Home Appraisal
- Desk Home Appraisal
- Hybrid Home Appraisal
- Government-backed Loan Appraisals
- Conventional Loan Appraisals
The timeline and cost of home appraisals will depend on the type. For example, drive-by appraisals take less time compared to full appraisals.
👉How Long Does an Appraisal Take? – Read our blog to get a detailed timeline on the appraisal process!
Home Appraisal Process – How Do Appraisals Work
All appraisals follow a basic template and have the same aim. Professionals look at the property and its details before coming up with a dollar value for it. Let’s look at how this works:
1. Research into the Market
One of the first things appraisers do is research the local market. A good local home appraiser will look at the sale values of three or more recently purchased properties in the neighborhood.
They will also look at general market conditions like whether the property values are likely to go down during the sale process. This process is called looking at the ‘comps’ to see the prevalent property prices.
This step is present in all types of home appraisals and is the biggest part of the desk appraisal process.
2. Appraisal Inspection of the Property
Unless you have picked a desk appraisal, the appraiser will visit your property. In a full traditional appraisal, they will conduct a comprehensive walkthrough of your home to spot anything that will impact the property’s value.
In drive-by and hybrid appraisals, the appraiser will just look at the exterior of your property to determine its value. Most lending institutions will require a comprehensive home appraisal.
3. Valuation
Once they researched the local market and looked at your property, the appraiser will compare the data they have collected before coming up with a number.
This valuation’s accuracy will depend on how comprehensive your home appraisal is. This can take a few days to complete as there is a lot of analysis and data sorting involved.
4. Report
After the appraiser has evaluated all of the information they have collected, they will start preparing a report. This process can also take some time as it includes tables, graphs, and a list of concerns.
A report will include all of the information that the lender, buyer, and seller need to know about the property’s value as well as condition.
While a home appraisal report isn’t as comprehensive as a home inspection report, it does provide some insight into the general state of a property.
These are the basic appraisal process steps. Different professionals will approach the process differently based on the type of appraisal and who they are working for.
» Home Appraisers: Want to know more about how home appraisers work, we have a post that can help.
What Do They Look For in a Home Appraisal
When you look at how do home appraisals work, you also need to consider what the experts look at. This also varies based on the type of appraisal, but in general, a pro will look at the following:
1. Physical Condition
During drive-by and exterior appraisals, the appraiser will just look at the exterior condition of the property. During a full appraisal, the expert will look at the interior and exterior of the house carefully to make the most accurate judgment.
The physical condition is one of the most important factors the experts consider. They will look at:
- Water damage
- Damage to foundation
- Damage to attic and insulation
- Roof damage
- Condition of fixed appliances
- Recent upgrades
- Condition of the bathroom and kitchen fixtures
- Plumbing system
- Electrical system
- Damage by pests and termites
These are some of the many factors an appraiser will consider during the physical assessment of your property.
2. Age of Property
The age of the property is also a big factor. Older properties often have concerns like lead paint, asbestos, outdated plumbing or electrical systems, etc. An expert will look at the factors mentioned below when looking at a property’s age:
- When it was built?
- When it was renovated?
- Record of renovations and improvements during its lifetime?
- Was it built before asbestos and/or lead were banned?
The answer to these questions will give them a good idea of what kind of repairs or improvements a buyer will have to perform to make the property liveable.
3. Location
The location also plays an important role. Properties located in good neighborhoods will be more valuable than the ones located in poor neighborhoods. The expert will look at things like school districts, connectivity, parks and recreational amenities, etc. while preparing their report.
4. Local Market Trends
Looking at local market trends is an important part of every house appraisal process. During their valuation, an appraiser will collect data from public records to study recent house sales in your neighborhood. That will give them an idea of what the local real estate market trends are like.
» Home Appraisal Checklist: Check out our comprehensive home appraisal checklist to see what experts look for during the home appraisal process.
How are Home Appraisals Calculated?
When you look at how appraisals work, a lot depends on something called ‘comps’.
What are ‘comps’?
They are comparable properties sold in the same area, ideally in the last six months. They are usually within a one-mile radius and have characteristics similar to the property to be appraised.
For example, if the appraiser needs to make a report on a single-family home of around 3,500 sq ft, they will look at other single-family homes in the area of about 3,500 sq ft.
If the comparable properties sold at around $550,000, the appraiser will value your property at around the same price.
However, they will consider unique factors that may increase or decrease the value of your property. If a comp has had a recent renovation with a gourmet kitchen while your property is a bit outdated, the appraiser will reduce your property’s value accordingly.
They may consider the gourmet kitchen to add around $15,000 to the property value and value your house at around $535,000 instead.
Similarly, if your property has an in-law suite or a granny apartment, the property’s value may increase! So if the appraiser feels a granny apartment adds around $20,000 to your home, they will value it at around $570,000.
» What Hurts a Home Appraisal: Want to know what can potentially lower your property’s value? Read this and find out.
How to Read an Appraisal Report?
An appraisal report usually consists of 7 pages, which can be a bit tedious to read through. If you’re wondering how to read a house appraisal report and get meaningful information out of it, we have some tips:
- Make sure the address is accurate
- Look at the appraised value of home
- Look at the comps and values of recent sales
- Read through the points that impact your property’s value.
- Look at the overall neighborhood score
- Consider whether there are any errors in the report
These are some of the points in the report that you should focus on. If you feel the report is inaccurate, get a second opinion and contact the lender or buyer directly.
How Accurate are Home Appraisals?
Home appraisal reports are fairly accurate most of the time. Appraisers are trained to study real estate data and compare property values accurately. However, errors can happen and if you notice them, don’t hesitate to point them out. You can always seek clarification on such matters from the appraiser.
It is also possible to get a second opinion and/or challenge the appraisal directly. There have been instances when an appraiser has undervalued a home because of appraiser bias. While this is illegal, the problem is still prevalent. It is something to consider during the home appraisal process.
If you suspect bias, don’t hesitate to speak up.
Home Appraisal Tips
Appraisals benefit all parties involved, buyers, sellers, and mortgage lenders. We have some tips that can help improve the accuracy of the valuation!
1. For Buyers
Buyers can ensure they choose a good appraiser or speak with their lenders if they have any concerns. If you’re applying for a VA or FHA loan, you may need a home appraiser approved by these agencies.
Buyers should also look at the home appraisal reports carefully to identify areas of concern. An appraisal report may not highlight all of the flaws or go into much detail about them, but it will point them out.
2. For Sellers
Sellers can improve their prospective valuation by considering what appraisers look at during the appraisal process. If there are any minor repairs, it is a good idea to fix them as they can impact the value significantly.
In fact, for every flaw the appraiser notices, they may undervalue your property by as much as $500. Ensuring your property is presentable can also help though that may not really impact your home value.
We also recommend keeping the invoices and receipts of all recent repairs or upgrades handy during the house appraisal process.
3. For Mortgage Lenders
Mortgage owners can benefit from hiring reputable appraisers from trusted companies. The appraiser’s performance will reflect on the lender as well. For example, if the appraiser is biased or has made errors, the buyer may not trust the lender much.
How to Find a Home Appraiser?
Finding a good appraiser is easier now than it was before the internet. You can just Google to find local appraisers in your area and read through their reviews to find the best one. You can also visit the local government’s home appraisal bureau or department for more information.
Make sure the appraiser has a good track record before you hire them. While looking for an appraiser, make sure they are certified by the state and have a few years of experience. No appraiser is allowed to practice without a valid state license and you can check whether they have one with the local government.
Conclusion
The home appraisals process involves looking at comps, assessing the property, coming up with a valuation based on data, and preparing a comprehensive report. A good appraiser will take a few days to a week to deliver a report but that depends on how busy they are. You can ask the appraiser for a timeline estimate during the appraisal process.
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Frequently Asked Questions
1. How home appraisal is done?
A home appraisal involves researching the local real estate market, looking at comparable properties sold recently, and a valuation. Once the process is complete, the appraiser will prepare a comprehensive report for you.
2. How long after appraisal is done do you get results?
It can take 1-2 weeks for the appraiser to prepare a report. If the expert is busy or if it is a busy real estate market, it can take longer.
3. Do appraisers come inside?
An appraiser will step inside your property if you book a full, traditional appraisal. They won't step inside in the case of drive-by, external, or desk appraisals.
4. What happens after an appraisal is done on a house?
After the appraisal is done and the appraiser has submitted the report, you can move on to the closing process. Depending on the report, the mortgage lender will offer the loan, change the loan amount, or deny the loan entirely. Renegotiations can happen based on the results of an appraisal.
