Something is worth what someone is willing to pay for it! That’s a long-held adage of market economics. However, that’s not always the case in a real estate sale. Home appraisals are typically the more accurate assessment of the value of a property than a mutually agreed upon price arrived by you and the seller- that’s at least in the eyes of your mortgage lender. So, what’s a home appraisal and how does it impact your homebuying process? Keep reading to learn more!
- An appraisal is an unbiased, third-party professional opinion of a property’s value.
- Your mortgage lender will request the appraisal to verify your home’s market worth.
- A certified appraiser will create a report based on an in-person inspection, current market trends, research into recent sales of similar homes, and details of the house including its condition, size, amenities, and floor plan.
- You, the buyer, typically pay the appraisal fee, which can range between $300 and $500.
- If the appraised value is lower than the selling price set, your transaction might be delayed or even canceled.
What’s a Home Appraisal?
A home appraisal is carried out by a licensed, neutral appraiser to determine the fair market value of a property. After you and the seller agree to a price on a house, your mortgage lender will request an appraisal to determine the property’s value. That’s usually based on the recent sales of comparable homes in the neighborhood and the appraiser’s judgment after evaluating the property.
Appraised Value Vs. Market Value
While the appraised value can be deemed the actual worth of a home, the market value is considered as the price that the house ultimately sells for, on the open market, based on demand and supply.
Let’s put it this way: Imagine a home with several expensive updates and lovely curb appeal is listed for sale in a desirable area and a seller’s market. After three days on the market, the seller receives several offers, some above the asking price, and eventually accepts the highest bid- that’s the market value of the house.
But when the appraiser looks at that property, the value in their eyes may be considerably less. That’s because the demand bubble drove the price artificially high. As such, the appraisal puts a check on the market value, cautioning you and the lender to be wary of lending too much for the house. Ultimately, the appraised value is crucial in whether the lender will agree to lend you the money and the deal can go forward.
How Much Do Home Appraisals Cost?
Home appraisal fees have risen in the last few years. Typically, a home appraisal would cost $300-$450, however, as of early 2023, the cost now averages at $500-$700. The cost can increase if the house is very large or has unusual characteristics. In fact, for large properties or multi-family homes, you can expect to be over $800 in appraisal fees. The mortgage lender will typically request the appraisal, but you, the buyer, will pay the appraisal fees, which are often a part of closing fees.
Home Appraisals Process
Here’s an overview of what you should expect during a home inspection:
The Appraisal Request
If you’re buying a home, your lender will request an appraisal after the offer on the house has been accepted and you’ve signed the purchase contract.
The Appraiser Evaluates the House
The appraiser will conduct a site visit or a remote evaluation to determine the home value. Appraisers took the virtual approach at the beginning of the pandemic, and are poised to continue to do so. If the appraiser is doing an in-person visit, the exercise will take between 15 minutes to 30 minutes. A large home could take a few hours.
Reviewing the Comps
Along with assessing the house, the appraiser will conduct a housing market analysis and review public records to determine what similar homes are worth, and how those relate to the property’s value. This information can be gathered from different sources, such as tax records, local multiple listing services, county court records, and local real estate agents.
Report and Valuation
Once the appraiser gathers the information, the appraiser will create a report, typically known as the Uniform Residential Appraisal Report, for the lender. As a homebuyer, you’re entitled to a free copy of the report before the mortgage closes. You should ensure that you read this report thoroughly and notify the lender if you notice any errors or inaccuracies.
What Happens After Appraisal?
If the appraised value equals or is below the agreed purchasing price, the mortgage process moves into the underwriting phase, in which the details are evaluated for risk and ultimately approved, turned down, or sent back for changes. However, if the home appraises for less than the purchasing price, the lender won’t proceed. In such instances, you have the following options:
- Negotiate with the seller to lower the price of the house.
- Come up with cash to cover the difference between the property’s purchasing price and the appraised value.
- Walk away from the deal- keep in mind that you’ll be held legally liable and lose your earnest deposit money if you didn’t include a home appraisal contingency in your offer.
Want to Learn More? Contact the Experts!
Virtually all properties bought with mortgage financing must be appraised before the mortgage can be approved. The mortgage lender wants to be sure that the house is not worth less than the amount they’re financing, and they rely on the evaluation of the property’s value made by the appraiser. The appraisal is also an extra layer of protection in that you don’t pay more for a house worth less. For more information about home appraisals and the overall homebuying process, consult our real estate experts today!