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Home Appraisals: Here’s What You Need To Know Before You Buy or Refinance a Home

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A home appraisal is an opinion of value based on recent sales prices of similar homes in the same area as the subject home. Most appraisals are ordered by mortgage lenders, and they’re conducted by licensed appraisers.

Why Is a Home Appraisal Necessary?

Your mortgage lender will require a home appraisal when you take out a loan to buy or refinance a home. The reason is that in the event you default on your loan, the lender wants to make sure it can recover its losses by selling the home. It does this by calculating the loan-to-value ratio to make sure it’s not lending you more than the home is worth.

In the case of government-backed loans like FHA, VA and USDA, the lender will order a fee appraisal. Although the fee appraisal is considered to be an appraisal and not a home inspection, the fee appraiser does perform a cursory inspection to make sure the home meets the loan program’s standards for safety and condition.

A home appraisal can also be a useful marketing tool when you sell your home because it tells buyers what it’s worth before they even make an offer.

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Another reason for a home appraisal is to determine whether you should challenge your tax assessment. Appraisals and assessments are different processes used for different purposes, but in the event your appraised value declines, it’s possible that your assessed value has declined as well. In that case, a reassessment will ensure that you’re not paying excessive property tax.

Good To Know

Appraisals and tax assessments are both opinions of value. But assessors might use a different method of valuation, and the taxing jurisdiction sometimes expresses assessments as a percentage of market value.

How To Get a Home Appraisal

If you’re financing a home purchase or refinance, your lender will order the appraisal on your behalf. In the event you’re selling your home, you can get a recommendation from your real estate agent or choose a local appraiser listed on your state appraiser licensing authority’s website.

What Does a Home Appraisal Cost?

Expect to pay between $300 and $400 for an average home. The fee is usually rolled into your closing costs.

What’s Involved in a Home Appraisal?

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In some cases, especially while COVID-19 measures are still in place, the appraiser might simply drive past the home to get a general idea of the size, style and condition. But a full appraisal involves a walk-through, during which the appraiser will evaluate many factors:

A fee appraiser also evaluates the home for safety and habitability and adherence to local codes. Some of the additional items fee appraisers look at include:

After the appraiser sees the home, they pull records for similar nearby properties that recently have sold. The appraiser uses various features of the subject and comparable properties to adjust the comparable property’s value up and down, eventually arriving at a value for the subject property.

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Say, for example, a comparable property that sold for $200,000 had an addition that added one more bedroom and one more bath than the subject property. The appraiser would adjust the subject property’s valuation down by whatever amount of value the appraiser assigns to the extra rooms. Likewise, in a case where the subject property has extra rooms, the appraiser would increase the comparable property’s valuation by the value of the extra rooms.

The appraiser follows this process for each comparable they’re using, and then compiles a report of their findings. The report includes data sheets for the comparable properties and the factors that influenced the appraiser’s opinion of value.

How To Prepare for an Appraisal

If you’re a homebuyer whose lender has ordered an appraisal, there’s nothing you can do to prepare because the home isn’t yours yet. But there are a number of steps you can take to maximize an appraisal being done for a refinance or to use in marketing when you list your home for sale.

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Curb appeal is vital, especially if there’s any chance the appraisal will be a drive-by — the appraiser’s assumptions about the condition of your home will be based on what they can see from the street. Clean up the yard, power wash the house if it’s looking dingy, and remove leaves from the roof and gutters.

Inside, it’s a good idea to stage your home. Hide clutter, do a thorough, top-to-bottom clean, including carpets. Also touch up damaged paint, and if the need for other needed repairs is evident, take care of them, too.

How To Use the Appraisal

When you make an offer on a home you need a mortgage to pay for, you can protect your earnest-money deposit by opting for an appraisal contingency that lets you out of the contract if the home appraises for less than the sale price.

If you’re refinancing your home, maximizing your home’s appraised value also helps you maximize how much you can borrow.

As a seller, you can make the appraisal report available to prospective buyers to justify your asking price.

What If I Disagree With the Appraisal?

Sometimes the appraisal’s bottom line catches the homebuyer or homeowner off guard. Although fee appraisals stand for 120 days, it’s possible to challenge regular appraisals. You or your agent can search comparables on your own, not just in the multiple listing service but also by searching deeds at the courthouse. The objective here is to find newer or better comparables than the appraiser used, including some the appraiser might’ve missed, such as homes sold as for sale by owners, or FSBOs.