Home appraisal is an objective, professional assessment to determine the value of a home. It’s an important component of purchase-and-sale transactions – like when buying or selling a home in order to determine whether the sale price of the home is in line with fair market value; and also used when you’re refinancing an existing mortgage to assure the lender that the homeowner isn’t over borrowing.
Home appraisals issues, like when the appraisal value is lower than what’s expected, can cause delays in your loan or even get cancelled that’s why it’s important to understand how home appraisals work.
How Home Appraisals Work
A licensed appraiser hired by the lender conducts the appraisal. The process starts through an appointment with the homeowner to visit the home after the lender orders the appraisal. This happens once the buyer makes an offer and signs a purchase agreement. For refinance transactions, the appraisal is coordinated after the homeowner applies for the new loan. Typically, the appraiser evaluates the exterior and/or interior of the property, and addresses what the lender specifically requests. Furthermore, the appraiser examines the recent sales of comparable properties in the area and checks public records on the property. Depending on the type and condition of property, it may be as short as minutes for smaller homes, but a larger property could take from several hours to assess. The complete and written report may take a few days to several weeks for complex cases.
The appraisal value of a property is influenced by many factors like:
- Current market trends
- Recent sales of similar properties
- Square footage
- Floor plan functionality
- Home amenities
- Number of bedrooms and bathrooms
Generally, the location, size, age, amenities, upgrades or improvements made, condition of the property, and comps are the key factors that the appraiser uses to determine the fair market value of property.
The appraiser’s report will include the following:
- Location of the property
- Square footage of the house and the lot
- Neighborhood
- Layout of the house
- Age and condition of the property (foundation, roof, walls and overall structure)
- Amenities (swimming pool, fireplace)
- Any fees associated to the property (rental income, homeowner’s association fees)
- Exterior building sketch
- Photographs of the home’s front, back, and street scene
- Photographs of each comparable property used (exterior)
- Market sales data
- Public land and Tax records
- The Value and its effective date (the appraisal is usually good for four months)
Home appraisers will also note the flaws of the property, the surrounding neighborhood, and the estimated time it would take to sell your property. The report will be sent to the lender and then to the buyer, which is usually at least three days before the closing date.
The average appraisal can range from $200 to $450, but the cost still depends on the type of appraisal that you need. This fee is part of the loan’s closing costs and is usually paid by the borrower.
How Appraisals Affect Your Home Loan
All lenders order an appraisal to assess the market value of a property. The result of your home appraisal will determine if your lender will approve your loan or not and assures the lender isn’t lending more than the actual worth of the home. This means that lenders won’t close a mortgage if your appraisal comes in below the purchase price of your home. If this happens, the buyer might need to pay in cash the difference between the appraised value and the sales price.
During a refinance transaction, the appraisal helps determine your loan-to-value (LTV) ratio. This means that you might be able to refinance to a lower interest rate if the value of the home increases after you close on your home purchase.
When your home appraisal goes well, you’re one big step closer to closing. And once you’re approved, you’ll receive the closing disclosure, which states the all of the finalized details of your loan including the closing costs.
What You Can Do to Increase the Appraised Value of Your Home
If you’re the seller of the home, working with a realtor or real estate agent can help you get your desired selling price. Your agent can help you prepare your own comps, and a list of renovations you’ve completed on the property. Your agent can meet with the appraiser and share important data that shows a list of properties in the area that are similar to yours and the price of the home improvements you’ve recently done.
Moreover, you can prepare your home by making sure all problems are addressed and fixed, interior and exterior are cleaned and uncluttered, and all systems are working properly. Consider doing some improvements such as updating your bathroom or kitchen. Don’t forget, curb appeal counts.
The bottom line is that a basic understanding of the home appraisal process is important and should never be ignored. The result can delay or cancel your transaction so, it’s crucial to know why and how home appraisal works for it to work in your favor.
If you’d like to see today’s mortgage refinance rates, check and compare rates here.
About ApexPro Real Estate
ApexPro Real Estate Group is a full-service real estate brokerage specializing in single family and attached residential properties throughout Houston and the surrounding areas. We are a privately-held small business that brings together top agents, cutting-edge technology, and unparalleled service to help clients throughout Houston to buy and sell real estate — and enjoy themselves every step along the way. Our client reviews are exhibits our dedication to help our clients extends beyond the closing table and we would love to earn your business.