Home Appraisals: A Total Guide

home appraisal

As a residential realtor, you’re no stranger to the appraisal process.

A fundamental aspect of the home purchase journey, appraisals are primarily conducted when buyers and sellers enter into a purchase agreement or when homeowners seek to refinance their home.  

Home appraisals seek to determine a home’s true value.

This is mainly for the purpose of the mortgage lender, who is providing the loan to property buyers. Lenders need qualitative assurance that the property is equal in value to the agreed-upon purchase price.

A lender wouldn’t provide a $900,000 loan for a $400,000 property. And in an era of overbidding, paying over asking, and steep competition within the housing market – appraisals may be an extra layer of complication to an already cutthroat time in the industry.

Therefore, let’s break down just what an appraisal is, what goes into it, and how you can best prep your buyers and sellers for its place in the process.

In this quick guide, we’ll show you:

What Is A Home Appraisal?

Home appraisals are meant to determine the overall value of a home.  

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Knowing the value of a property helps validate the legitimacy of a purchase offer, as well as provide qualitative proof of collateral for the refinancing process.

A home appraisal is performed by an impartial third-party state-certified or licensed appraiser so that the overall appraisal report can remain objective and not move to benefit either the seller or buyer unfairly.

Home appraisals examine the exterior and interior of a home, looking into everything from square footage and bedroom and bathroom count to the overall quality of the structure and where repairs may be needed. If the home has gone through remodels or additions since the last appraisal, these are documented at this time.

Additionally, home appraisers will research comparable properties in the area and what they sold for, as well as relevant market trends that could sway the overall fair market value.

At the end of the appraisal process, a home appraiser must submit an appraisal report.

Not only does this report contain the findings and observations found through the above processes, but it also incorporates street maps, building sketches, property photographs, and additional information such as property tax records.

While reporting structures may differ across lenders, one of the most commonly used is the Uniform Appraisal Report from Fannie Mae.

What Your Clients Need To Know About Home Appraisals

Appraisals are a necessary aspect of the property-buying process. They ensure fairness on all sides while paving the way for a complication-free closing.

But they don’t come cheap.

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The Cost Of A Home Appraisal

According to the National Association of Realtors, the average price for a home appraisal is $500; however, this number can shift based on property location and size, among other factors. 

In a 2023 survey, the NAR found 20% of home appraisal costs landed between $600-699, with 8% at $800 or more. Overall, 86% of home appraisals cost $400 or more.

The Timeline Of A Home Appraisal

Appraisals also don’t happen overnight.

2023 held an average 11 calendar day wait time, down from 2022’s average of 14 calendar days. This is after the acceptance of a home contract.

A Home’s Appraised Value vs. A Home’s Purchase Price

While appraisals are covered by the buyer, both the buyer and seller are hoping for similar outcomes. If a home’s appraised value meets or exceeds the purchase price, typically, the sale can continue as planned.

However, if the appraised value does not meet the purchase price, this discrepancy is called the appraisal gap.

If your clients are unsure of what this is – they aren’t the only ones. The NAR reports that 44% of 2023 survey respondents report most or all of their clients don’t understand exactly what an appraisal gap is.

But this colossal rock in the process is necessary education for buyers, as it can drastically upend their path to purchase.

Lenders won’t cover this gap, so if buyers wish to continue forward with the purchase and the sellers will not lower the price to meet the appraised value, that chuck of change is now on the buyers.

Which can naturally be tough for many as they’re already on the hook for a significant down payment (and other fees in addition to moving costs).

In fact, buyers being unable to cover this gap led to one of the top reasons transactions fell through due to appraisals in 2023 (48% in 2023 alone, up from 35% in 2022).

Other reasons transactions have fallen through post-appraisal? The NAR reports 59% is simply due to the appraised value, while 48% is due to the seller refusing to adjust price.

Therefore, with all that’s riding on an appraised value – there are steps you should take with your buyers and sellers to prepare your property and try and achieve the most optimal outcome.

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Unsure how to proceed? We’re here to help.  

A Step-By-Step Readiness Checklist For Your Next Home Appraisal

Appraisals are rooted in multiple factors; however, there are a few proactive steps you can actively take to showcase a property in a positive light and make the entire home appraisal process a little bit easier.

Think of it just like creating a listing. You do everything you can to highlight a home’s beauty, functionality, and benefits to a potential buyer.

You can take similar steps prior to an appraisal – especially if representing a seller.

How To Help Your Sellers Prepare For An Appraisal

You’ve already done the heavy lifting to stage, clean, and tackle big repairs prior to listing. Think of your appraiser visits as the last lap.

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  • Hire a cleaner. Especially if your buyers are still living at home, this ensures your appraiser gets the cleanliness of an open house. Remove all pets from the property, and ensure everything looks just as spotless as it did for showings.
  • Check all devices. Dishwashers, fire alarms, garage doors – you name it, your appraiser may test it. Make sure everything is working smoothly.
  • Landscape like a pro. Don’t let an overgrown yard be your seller’s downfall. Even if a buyer was able to look past it, an appraiser may not. Hire in expert landscapers and aim for pristine curb appeal.
  • Eliminate safety concerns. Shaky banister? Loose screws? Rotted back deck? Get these taken care of ASAP.
  • Be vocal about updates made. While an appraiser will most likely observe fresh work done on the home, be sure and voice any and all updates made. Fresh paint? Mention it. New kitchen? Make sure it’s noted. Recent roof install? New pool? Top of the line A/C unit? Get everything documented and sent over. Additions and updates to a home will likely raise its value.

How To Help Your Buyers Prepare For An Appraisal

While most of the work will reside with the seller, you can still aid your buyer in making the most of an appraisal.

  • Prep them on their options beforehand. Appraisals have the potential to impact the contract, the buyer’s mortgage, and the amount they’ll need to pay out-of-pocket. Discuss all scenarios ahead of time so you and your buyer feel aligned on next steps whether the appraisal comes in under or over. Know what their commitment is to this specific property and any wiggle room they may have to cover potential gaps.
  • Prepare to negotiate. In the case that the appraised value comes under the purchase price, you and your buyer can attempt to bargain with the seller to get that original price down. Lenders won’t cover the difference so now may be the time to play hardball.

How To Help Your Refinancing Homeowners Prepare For An Appraisal

Hopeful refinancers are in a similar position to sellers. They need to ensure they get a high appraised value for their property and that this number hasn’t slipped since their last appraisal.

The higher the number, the more eager mortgage lenders will be to make a deal. This opens up the option for better rates and optimal offerings.

  • Voice those upgrades. Just like a seller’s agent would, you need to take note of all updates, additions, and work done to the property since your clients first bought. This can showcase consistent and rising value in the home.
  • Research your community. Yes, the appraiser will run their own comparables, but it may be helpful to pull some of this information yourself to send their way. Have the nearby school districts improved? Have neighboring homes’ values increased? How has the community scaled since your clients moved in? What new restaurants or retail destinations have opened?
  • Present the best. This includes repairs, landscaping, and home cleaning. Pretend you’re hosting an open house and put your best foot forward. While it may not be necessary, given your clients’ decorating patterns, you may choose to go the extra mile to formally stage.

Challenging An Appraisal

It’s messy, and it happens. More than you think.

In fact, a top reason why home transactions fell through in 2022 was due to appraiser error (a whopping 39% due to lack of knowledge or in using inappropriate comps).

So, if a home appraisal comes back that you don’t agree with – stay calm. It’s very possible to challenge as well as get another opinion.

First step? Reach out to your buyer’s lender. Point out the identified errors (with documentation on what the information should be), and formally request a new appraisal.

Remember, don’t let your emotions or opinions cloud your judgment here. Present the facts and research professionally – and in writing.

A few key areas to double check?

  • The size of the home. Is the square footage accurate? Does it show the right number of beds and baths?
  • The inclusion of new work and home updates. Your seller’s remodel is missing? Red flag. Get credit for that hard housework and make sure it’s noted and taken into consideration.
  • Inadequate comparables. As a reminder, your appraiser should be looking at recently sold homes (as these reflect current market trends). These homes should be located within a reasonable distance and be similar to the structure of the home you’re selling. A ranch shouldn’t be compared to a six-bedroom mansion that sold six months ago.

Using Public Records Data To Proactively Inform Your Offer (And Prep For Appraisals)

By now, you know being informed is the name of the game in real estate.

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Doing your homework will take away the surprise factor from appraisals, but it will also drastically help when you go in for the initial offer as well.

So, how can you make it happen?

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With multi-sourced, backtested, and backfilled data – PropertyRadar boasts accuracy and timeliness, as well as a full-time expert research team dedicated to providing the most extensive property information experience available.

How does this help?

For any property you want to look up, PropertyRadar has you covered

Dive into in-depth comparables, community demographic information, extensive transaction history, and more. Get the low-down on any property before your buyer puts in an offer, and refine your purchase price before the ink is dry on your contract.

PropertyRadar offers expansive portals into properties, geofarming, heatmaps, and proactive recommendations so you can reach potential clients and review vital property information before anyone else.

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