What Is a Home Appraisal?

A home appraisal is an independent, objective and professional analysis and opinion of a home’s value. An appraisal aggregates an array of information including details on the home itself (the floor plan, amenities, and how big it is), a visual inspection, real estate trends in your area, and how much nearby homes in your area sold for. Adjusting for differences between the subject property and competing properties results in a range of supportable values.

Most common uses for an appraisal will be when someone is buying, selling, or refinancing a home. In addition appraisals are used to settle estates, in court cases, for tax planning and gifting, a lot of reasons beyond financing.

Home appraisals will let those buying a home know if a home is a good price. But critically it’s real function is to assess the collateral and risk to the lender.  The lender needs to know that they are loaning funds to a property that is holding it’s value.

How Much Does a Home Appraisal Cost?

The home appraisal cost is typically several hundred dollars. Most people can expect to pay between $300 to $700 for a home appraisal, but it could be higher depending on the specific property. Some examples:

• If the property contains a pond or lake, you can expect the home appraisal cost to be more.

• If the appraiser is inspecting a larger home and/or a bigger overall property, then the home appraisal cost will go up. The same applies to jumbo loans, which are usually given to borrowers purchasing homes priced in the upper six-figure and $1 million-plus range.

If this sounds expensive, and you find yourself saying “why, when I can go on Zillow and get a value for free.  Well that is true but the old adage applies “you get what you pay for.” Sometimes that Zillow value might be spot on, sometimes it will be far off. How would you know. Appraisers are professionals that spend considerable time on these assignments. As well they have education and continuing education requirements. In addition, in addition to developing the value, there are compliance considerations, legal requirements, liability exposure and more. When you break it down, if an appraisal takes for example 10-15 hours to complete, that works out to be $25-$75 per hr. This is a fraction of what you would expect to pay a lawyer or accountant or finance professional. It’s even less than you might pay a plumber or an electrician

The cost of a home appraisal covers things like the appraiser’s training, licensing, insurance, and expertise. It also covers the time it will take the appraiser to assess nearby sales and market trends as well as conduct a visual inspection.

What Is the Home Appraisal Process?

The appraisal process may seem complicated, and you may wonder about how long a home appraisal will take and how deeply a home will be scrutinized. Fortunately, trained appraisers will be able to explain and guide you through every step. Nevertheless, it is worthwhile to keep reading so you can be ready and prepare a bit. Some points to know:

• Generally, if a home is being sold, the appraisal happens after an offer on a house is accepted and within a week after an inspector has toured the home. Sellers have the option, should they wish to pay for it, to do a pre-listing appraisal so they have more information and are better prepared for negotiations.

• In most cases, the mortgage lender will seek out a third-party appraisal company to come up with an objective analysis of the home and the appraisal estimate. The lender will determine the cost of the home appraisal, with the borrower usually being responsible for covering the expense. This is small but important detail. You do not own this type of appraisal just because you paid for it, the bank does. 

Next, how long does a home appraisal take? The actual on-premises inspection appraisal can take one hour or more, depending on how big and complex the home is. Here is how it typically goes:

• The appraiser will usually bring a form to collect information about the home including things like measurements, nearby housing trends, the demographics of the neighborhood, the condition of your home, and how it compares to other properties in your area. (Some of this is research the appraiser will do back at their desk.)

• The appraiser will also review things like the home’s location, quality of construction, parking situation, exterior condition, its age, and its structure, the quality of the siding and gutters, and the square footage.

• They will also research the appliances and mechanical systems, health and safety factors, the number of bedrooms and bathrooms, and the code compliance throughout.

• The appraiser will usually take photos of the home as well as make notes. If you are the homeowner, try to avoid getting in the way when the appraiser is taking photos or interrupting them while they are working.

• The appraiser may ask questions about what has been done with the home to get a more accurate report. If the homeowner doesn’t want to be there for the appraisal, the real estate agent you are working with can fill in to answer questions that may come up during the appraisal.

After the appraiser finishes, they will put together a report. This involves research into pricing and home values in your area, as well as prevailing market trends. The appraiser may need to check that you had permits to make upgrades, which could delay the process. Typically, however, the finished product is delivered within a week to 10 days.

The report is usually about 10 pages long, but it could be longer if a property is large or complex. It will show details about the home as well as local properties that are similar to it. Here is how its content could impact your sale:

• If the appraised value is around the same price as listed, then the sale could close shortly after that.

• If it is lower than expected, you have what’s known as an appraisal gap, and it may be necessary to get in touch with the lender to see if a mortgage will be approved. Keep reading for more details on this scenario.

What If an Appraisal Comes in Low?

There is no such thing as low to an appraiser. A property is worth what it’s worth.  We are not in the “feel good” business, or the “lets make a deal” business. Think of an appraisal as part of an integral system of checks and balances.  An honest appraisal is never as appreciated as it should be, and in my decades of doing this work, this is one of the more discouraging aspects of what we do.

If the appraisal comes in “low” versus what you think your home’s value is, you have the option to inquire and offer any insight for reconsideration. It must be factual or have some basis in fact, something specific and meaningful that an appraiser overlooked. Things like “the appraiser missed that I changed out all my lightbulbs to LEDS” means nothing. In addition, another critical piece is that by law and appraisal standards, appraisers must treat finished basements differently than you might feel about them. The appraiser didn’t “miss“ the finished basement, he/she simply accounted for it in a different place in the report.

If you are working with a Realtor, they may be able to provide examples of comparable homes being of higher value for reconsideration.

Each lender may have different criteria for formally disputing an appraisal, so should there be an issue; contact the lender to review their policies. In most cases, only the lender can request a second appraisal.

Home Appraisal Checklist

Before getting a home appraised, there are a few things you can do to help the process go smoothly.

1. Declutter. While messiness shouldn’t impact the value of your home, if you get rid of clutter, the appraiser can do their job more easily and quickly.

2. Clean. Thoroughly clean the inside and outside of the home, including the yard. Break out the cleaning supplies or hire a professional cleaning team. It can improve the overall impression of a home’s condition. Overall impression is what buyers look at, and Appraisers model what buyers consider.

3. Make minor repairs. It’s also a good idea to repair any cracks in the wall, paint over paint that is peeling, and make any other visual repairs that may need attention. Making some common home repairs may cost a little money, but it’s preferable to having a long list of things flagged in the appraiser’s report.

4. Check fixtures and appliances. Test the lights, faucets, ceiling fans, and security system, as well as confirming that the windows and doors open and close easily. Run appliances like the oven and dishwasher as well to guarantee there are no problems.

5. Think curb appeal. The exterior of your home is among the factors that affect property value. Consider trimming hedges, getting rid of cobwebs, cleaning the gutters, pulling weeds, and mowing the lawn. Adding plants or flowers could help, too.

6. Plan for pets. If you have pets, consider putting them in a designated room or taking them to a family member or friend’s home during the appraisal. Nothing like an appraiser coming to the door being greeted by a dog jumping onto his/her chest and a homeowner saying  “don’t worry he won’t bite” as the pet all over the appraisers private parts.

7. Compile upgrade info. If possible, make a list of all the upgrades that have been completed on the home and attach permits and receipts detailing how much it all cost.

The Takeaway

Whether you’re buying, selling, or refinancing a home, going through a divorce, settling and estate a home appraisal is a key part of the process. It is unbiased. Remember everyone involved in the need for an appraisal has some bias, except the appraiser – respect and appreciate them for that. An appraisal is also only a snapshot in time, which is why it is always tied to a date.  Lastly, an appraisal is a judgement tool for you to consider the relationship between the value and the price. The appraiser does not determine the price of a property. He doesn’t decide anything, more like a reporter, he observes what others have paid for similar properties and offers a professional supportable opinion about what most people would likely pay.  It doesn't mean you can't sell it for more. It doesn’t mean you can’t pay more. In the case of most transactions, it simply means that if you want to use someone else’s money, only expect to get a loan based on what most people would pay. Because in the end, if you default, and the bank has to take the property back, they need to know they will recover their investment.

Knowing what to expect can help ensure the process goes as smoothly as possible. It’s also a good idea to understand the factors that go into an appraisal so you can be prepared if the results are not in the range expected.