The home appraisal process is something both buyers and sellers need to understand. The appraisal determines how much your home will ultimately sell for. It also acts as an additional security for the buyers that they are not overpaying for a property.
So what is an appraisal?
By definition, an appraisal is an expert’s assessment of the value of something. For these purposes, we are discussing the value of a home.
The appraisal comes in a report that is researched and compiled by a licensed appraiser. A residential appraisal can only be performed by a licensed appraiser and any other valuation coming from someone such as a Realtor® or the like is merely a price opinion.
An appraisal report may be used to help someone make a decision. Where a loan is involved in a real estate transaction, the lender will likely require an appraisal to assure them that the value of the home is not less than they are lending.
Other uses for an appraisal:
In addition to home mortgages, appraisals can also be called on for:
- refinancing a mortgage
- estate planning
- estate settlement
- tax assessment review
- tax advice
- dispute resolution
How much does an appraisal cost?
In general, residential appraisals cost between $250-$500 and since no house is the same, no appraisal cost is either. There are a number of factors that go into the cost such as:
- Square footage – larger houses generally take more to inspect for the appraiser, especially if the appraiser must measure the property. Additionally, larger homes may have more improvements to analyze as well.
- Location – remote or rural properties can be harder to find comparable sales for. The research time can drive up the price of an appraisal as well.
- Complexity – unique or special properties can present more challenges for the appraiser as well. Waterfront homes, horse properties, historic homes, homes with rare improvements can be difficult to find comparable sales for too.
Who pays for the appraisal?
The lender orders the appraisal but it is the buyer that pays for it. The appraiser gets paid at the the time of the appraisal and since the appraisal is a contingency, it is part of the buyer’s due diligence. The buyer can certainly ask for the seller to pay but they are generally reluctant to cover that cost due to the fact that it can be hard to recover that cost if the house doesn’t appraise or the deal doesn’t close. One option may be to have the seller reimburse the cost at closing.
How does an appraisal work?
The entire process starts with a contract. The homebuyers gets pre-qualified for a mortgage and pre-approved by a lender they choose to work with.
Once the buyer has an accepted offer on a house, the due diligence phase begins. There are various contingencies in the contract that allow for buyer to do inspections and arrange for financing.
The lender should receive a copy of this contract and the receipt of it is the lender’s cue to order the appraisal. The appraiser will then schedule a time to visit the home and do their appraisal inspection where they will gather the data they need to compile their report.
What is a home appraiser looking for?