Keep apprised of your home’s value with an appraisal
An appraisal determines a home’s value and is a necessary part of the mortgage process.
Appraisers use property, neighborhood, and market data to assess a home’s market value.
Lenders use appraisal values to confirm that the loan amount isn’t for more than a property is worth.
If you’re buying or selling a home, you need to know how much it’s worth so you can make an informed decision. A home appraisal determines a home’s value using various methods and data to give a fair and accurate assessment. Lenders require an appraisal before approving a new mortgage or a loan for refinancing, so it’s important to have an objective, accurate assessment to confirm the home’s value. Learn more about home appraisals and why they’re such a critical part of the home-buying process.
A home appraisal is a determination of how much a home is worth at a particular point in time. Appraisals take into consideration the specifics of a property, the condition of the home, any unique features, the value of comparable homes in the area, and more to arrive at a home’s value. There are several types of appraisals, a market value appraisal being the most commonly used type for residential real estate transactions.
A local house appraiser is a licensed and certified professional who will provide an impartial assessment of a home’s value using a home appraisal checklist and market data. Appraisals are an important part of buying and selling a home to ensure the house is being sold at the correct price.
Mortgage companies typically require an appraisal before underwriting a loan to confirm that they don’t lend more than the property is worth since the home acts as collateral for the loan. Most often, the buyer pays for the appraisal, or it’ll be built into the closing costs. You’ll also need a home appraisal before refinancing—the mortgage company wants to ensure their loan is in line with what the house is currently worth.
Appraisals are sometimes necessary even before you have a home to appraise. When you’re building a home, you’ll need a land appraisal before purchasing the land you’re building on. Insurance companies may also require an appraisal, particularly after you’ve done value-adding updates.
Appraisers determine house value using a combination of methods and data sources, including inspection results, comparisons to sales prices for similar properties, neighborhood information, and current market trends. Appraisals required by the U.S. Department of Housing and Urban Development (HUD) for Federal Housing Administration (FHA) loans also require additional reporting on the home’s safety and security according to the FHA appraisal guidelines.
Once the appraisal has been conducted, the appraiser will compile a report to submit to the lender and other involved parties that details the home’s value. Appraisals are generally conducted in a few hours or less in your home, but the report may take up to several weeks to compile.
While an appraisal uses information that can be obtained in an inspection, the two are very different. The focus of an appraisal versus an inspection is different—an appraisal determines the home’s value, while an inspection details specific observations about the home’s condition. Inspections aren’t always required to obtain a mortgage, but with very few exceptions, appraisals are. A home inspector won’t make a determination about your home’s value, but they will pinpoint any safety concerns, code violations, or areas in need of repair.
Various factors affect your home's appraisal value, including its location, age, condition, curb appeal, and comparable properties. These factors can help or hurt your home's value.
A home appraisal costs an average of $350 and a home inspection costs about the same. It may seem redundant at first, but if you’re looking to buy a home, having both an inspection and an appraisal will ensure you have a full picture of the property you’re considering.
If the value of the home you want to buy is appraised at less than the price of the offer, you may not be able to obtain a loan for the offer amount. Lenders want to ensure that the amount they’re lending isn’t more than the market value of the property, so you may have to increase your down payment to reduce the loan amount or get a second appraisal if you still want to proceed with the purchase.
The condition and appearance of your yard can affect your home appraisal value. A well-maintained, attractive yard with curb appeal adds to a property’s value, while an overgrown, messy, poorly maintained yard can hurt your home’s appraisal. Even small cosmetic improvements to your yard, like adding mulch, trimming trees, and cleaning out plant beds, can help your appraisal value.