Whether you’re looking to buy, sell, or renovate your home, a home appraisal is an integral part of the process. Home appraisals are one of the most important tools for determining property value.

Home appraisals can be done for a number of reasons, often playing a role in appraisals for homeowners insurance, for example. In buy/sell transactions, they are often ordered if the buyer is looking for financing – the mortgage lender wants to see if the agreed upon purchase price for the home is in line with the appraised value. The loan amount can be adjusted based on the appraised value of the home.

Therefore, it is helpful in determining the value of the home, the amount of the mortgage, finalizing the sale of the property or many other transactions of your home. Here’s what you need to know about home appraisals.

Home evaluation process

A home appraisal is conducted by an independent real estate appraiser who is professionally licensed to evaluate property values. During the appraisal process, they will thoroughly inspect the home, including visiting the property and assessing its condition. They also consider various market conditions, including finding comparable properties, aka “comps,” that have similar features and characteristics and sell in the general area where the home will soon be appraised.

After completing this evaluation, the evaluator will submit an evaluation report. This report—typically the Uniform Residential Appraisal Report prepared by Fannie Mae—includes a description of the home’s interior and exterior, construction details, neighborhood information, and recent comparable sales. The report includes the insights gained from the subscriber as well as the final assessed value. This figure is the fair market value of the home.

Home appraisal vs home inspection

While home appraisals and home inspections share some qualities, they are not the same. Home inspections look for specific problems the property may have, from cosmetic damage to serious structural issues that require immediate or long-term repair.

Home inspectors do not judge the value of the property, but rather the condition. Appraisals are a more broad stroke appraisal that is used to determine fair market value, all things being in working condition.

What do reviewers want?

Appraisers consider many factors when looking at a property. They consider the living conditions of the house admirably. Any visible damages or issues are taken into consideration, but the appraiser typically doesn’t look behind the walls to see the interior of the property. It is a visual assessment of the property’s overall, outward-looking condition.

Reviewers will note home improvements and upgrades. Potential fixes, major improvements or additions, and unique or desired features are all considered. Typically, home improvements increase the value of the home. Interior and exterior renovations, including upgrades to the garage or landscaping in the yard, are considered in the review.

Finally, the appraiser looks at other properties: typically those in the same zip code that are comparable in size, age, and other characteristics to the home being appraised. This provides a general market feel for homes with similar features. These comps provide context by establishing different property values ​​for the home.

How long does a review take?

Appraisals can take up to several weeks to complete, although not necessarily the time it takes to perform a single, on-site home appraisal. That visit will take up to an hour at most.

Rather, it often depends on the timeline of the review. You may have to wait several days for the appraiser to come to your property. Then looking at the comps is a matter of the appraiser’s schedule.

An appraisal can take a few days if the appraiser is not busy, but it can take several weeks to get a completed appraisal report.

How much does an appraisal cost?

According to data collected by HomeAdvisor, the appraised value of a single-family home ranges from $313 to $42, with an average of $350. Typically, the buyer pays the cost of the appraisal (which is usually required by the mortgage lender). But this can be negotiated.

Evaluation tips for buyers, sellers and improvements

The appraised value of the home can affect everything from the sale price to the mortgage amount to the interest rate on renovating. For this reason, it is important that buyers do not get out on their skis and make an offer above the home’s list price. Typically, lenders will not offer more than 80 percent of a home’s appraised value.

This can lead to an appraisal gap, which puts the buyer in a position where they are required to make a large down payment – as a result paying the difference between the sale price and the appraised value to get the loan and get the home. (Some buyers put an appraisal condition in the purchase contract that allows the sale to stop if the difference is too great.) Looking at similar homes or working with a real estate agent to do a competitive market analysis can help avoid an appraisal gap.

For sellers, it is important to make sure that the appraisal accurately reflects the value of a home. Notify the appraiser of offers received on the home to indicate market demand, and participate in the appraisal to give the appraiser insight into improvements or improvements that may increase the property’s value.

Likewise, if you’re refinancing, it’s worth pointing out improvements to the property to reflect its true value. It’s also a good idea to fix any visible cosmetic issues on the home before an appraisal to accurately reflect the price.

Reviews with other home price models

Home appraisals are the most commonly used method of determining a property’s fair market value, but they are not the only option. Automated Valuation Models (AVMs) can provide an algorithmic assessment of your home’s value using comparable properties. These are more efficient than evaluation, as they can be done almost instantly.

But they don’t consider the condition of the property, just like an appraiser does. Nor can the appraiser provide the same insight into the local market.

Next steps in home appraisals

A home appraisal allows a buyer and seller or financier to understand the fair market value of their property. If there are issues such as a significant gap between the home’s sale price and the appraised value, they need to figure out how to bridge the gap – when the seller lowers the sale price, the buyer saves more money – and keep the transaction moving. If it meets expectations, the transaction can move forward to the loan paperwork process – and, hopefully, a successful closing.