Home Appraisal FAQs

an image of a houses in line with a magnifying glass looking at one of the house

When you purchase a home with the help of a mortgage loan, your lender may require a home appraisal. The same is true when refinancing an existing mortgage. Home appraisals are a significant part of the home buying and refinancing process, and it’s beneficial for buyers, borrowers and sellers to know what to expect. Let’s take a look at some of the most frequently asked questions about home appraisals:

What is a home appraisal?

An appraisal is an estimate of the fair market value of a home. A certified or licensed appraiser evaluates the property considering several factors, namely the condition of the property, its location and recent sales of similar homes in the surrounding area. An appraisal assures the home’s purchase or refinance amount is reasonable and protects the lender from lending more money than the value of the home.

Who is responsible for ordering and paying for an appraisal?

The mortgage lender orders the appraisal, and more than likely will use an Appraisal Management Company (AMC) to ensure the appraiser is certified or licensed. Even though the lender requires the appraisal, the buyer/borrower is typically responsible for paying for it.

How much does an appraisal cost?

The average appraisal fee for a single-family home ranges between $312 and $407, but there are several factors that can increase the amount, such as the size of the property, its location and the type of loan the buyer or borrower will obtain. The appraisal fee for government-backed loans is usually higher than conventional loans because they require additional safety inspections. The appraisal fee can be paid upfront or included in the closing costs.

How is the appraisal process conducted?

The appraiser will likely perform four steps during the appraisal process: (1) research the home’s history; (2) evaluate the market; (3) conduct an on-site inspection; and (4) submit a report. Each step must be performed in accordance with quality control standards and guidelines set forth in the Uniform Standards of Professional Appraisal Practice (USPAP). Let’s explore each step more closely.

  • Research the Home’s History: USPAP requires an appraiser to analyze and report the previous 36-months of sales and listing history for the property. To obtain sales data, appraisers typically review Multiple Listing Service (MLS) records. An appraiser may also research municipal and county public records for property tax history.
  • Evaluate the Market: Using MLS, the appraiser will review recently sold comparable homes. Comparable homes are usually close in proximity and share similar characteristics, particularly square footage and number of bedrooms and bathrooms. Neighborhood attributes and market trends will also play a role. The appraiser will look at the property’s proximity to employment, public transportation, local amenities and its overall appeal to the market.
  • On-Site Inspection: The appraiser will take notations, measurements and photographs of both the interior and the exterior of the home. The number of rooms, and size and condition of each will be noted. The appraiser will look for improvements, such as a remodeled kitchen, energy efficient windows or updated heating and cooling systems. Amenities that may add value, such as fireplaces, pools and views, may also be factored into the appraisal. On the other hand, the appraiser will also record less desirable characteristics, like nearby railroad tracks or a busy highway. The appraiser will visually examine the roof, gutters and foundation. Government-backed mortgage lenders also require inspection of health and safety details, like smoke detectors and properly installed staircase handrails.
  • Submit a Report: The appraiser will compile all of the research, inspection notes and photographs into a comprehensive report. The Uniform Residential Appraisal Report (Form 1004) is one of the most common forms used for single-family dwellings. The report is sent directly to the mortgage lender and a copy is shared with the buyer. The seller will not automatically receive a copy, but can request one from the lender.

What if the appraised value of the home is higher or lower than expected?

If the appraised value is higher than the purchase price, the buyer is off to a good start. This means the seller has agreed to sell the home for less than the fair market value. It’s important to note that the selling price will not increase to meet the appraised value. Therefore, the lender will not require the buyer to obtain a higher mortgage loan.

On the other hand, if the appraised value is less than the purchase price, the following could occur:

  • The seller and buyer renegotiate a lower purchase price.
  • The buyer agrees to pay the original purchase price and increases the down payment to meet the lender’s loan-to-value ratio.
  • The buyer or seller disputes the appraisal report (see below).
  • The buyer or seller cancels the transaction.

What if I want to dispute the appraisal?

If the appraisal report contains errors, omits valuable upgrades or includes outdated comparables, the buyer can ask the appraiser to reconsider it by writing a letter to the lender. If the appraiser is unwilling to reconsider, the buyer can discuss the appeal process with the lender. Alternatively, the buyer or the seller can order a second appraisal. To find certified and licensed appraisers in a particular area, the parties can visit the National Association of Real Estate Appraisers.

Can a home appraisal be waived?

Yes, under certain circumstances. Transactions with all-cash buyers and certain home sales $400K and below can eliminate the home appraisal process entirely. Conventional purchase loans backed by government-sponsored enterprises, such as Freddie Mac and Fannie Mae, offer appraisal waivers on eligible transactions. Government-insured loans may waive the appraisal process on streamline refinance programs. It’s important to understand how an appraisal waiver will affect the mortgage loan and overall transaction before making any decisions.

While a home appraisal may appear to be just another daunting task to complete when purchasing or refinancing a home, it’s an important part of the process that provides financial protection for all parties involved. It confirms the buyer is paying fair market value, secures the mortgage lender’s investment and may help the seller obtain a competitive price. Knowing the answers to these home appraisal questions offers peace of mind for all parties. For more information about the various steps in the closing process, contact an Old Republic Title representative today.