Your home appraisal might feel like the final hurdle before homeownership, but understanding the process can ease those pre-closing jitters. This professional evaluation determines whether you’re paying a fair price for your dream home – and whether your lender will approve the loan amount. Here’s what happens during this crucial step.

What Is a Home Appraisal?

A home appraisal is an unbiased professional estimate of a home’s fair market value conducted by a state-licensed appraiser. Unlike a home inspection that searches for defects and problems, an appraisal focuses on determining what the property is actually worth in today’s market.

Your mortgage lender requires this evaluation to ensure they’re not lending you more money than the home is worth. Since the house serves as collateral for your loan, the lender needs to know they can recover their investment if something goes wrong.

The Appraisal Timeline

Your lender typically orders the appraisal within 48 hours after your offer is accepted. The borrower (you) pays for the appraisal as part of closing costs, which typically runs $300-500, though it can reach $900 for rural properties or unique homes.

The entire process takes 1-3 weeks from start to finish. The actual property visit lasts 30 minutes to 3 hours depending on the home’s size and complexity. After that, expect to receive your appraisal report within 6-20 days, though you’re guaranteed to get it at least three days before closing.

What the Appraiser Examines

Property Inspection

The appraiser conducts a thorough walkthrough of your home’s interior and exterior. They’ll measure rooms, note the number of bedrooms and bathrooms, check the overall condition, and photograph various areas. They’re looking for obvious issues like water damage, structural problems, or safety concerns that could affect value.

Don’t expect them to test electrical outlets or run the HVAC system like a home inspector would. They’re focused on the big picture: overall condition, square footage, layout, and any major improvements or upgrades.

Comparable Sales Research

The appraiser researches recently sold homes in your neighborhood with similar characteristics – same number of bedrooms, similar square footage, and comparable lot size. These “comps” form the foundation of your home’s valuation. They’ll adjust the value up or down based on differences between your home and the comparable properties.

Neighborhood Analysis

Location matters enormously in real estate valuation. The appraiser considers the neighborhood’s overall condition, nearby amenities, school districts, and whether property values are rising or declining.

Preparing for the Appraisal

As the buyer, you have limited control over the appraisal preparation since you don’t own the home yet. However, you can take a few steps to help ensure a smooth process.

Communicate with the Seller

Work with your real estate agent to politely request that the seller ensure the home is clean and accessible for the appraiser. Most sellers understand that a successful appraisal benefits everyone involved.

Gather Documentation

If you’re aware of recent improvements or upgrades the seller has made, help ensure the appraiser knows about these value-adding features. Your agent can coordinate with the listing agent to provide documentation of improvements, installation dates, and costs.

Provide Comparable Sales

You can research recent sales of similar homes in the neighborhood and ask your agent to share this information with the appraiser, though they’re not obligated to use your suggestions.

Possible Appraisal Outcomes

Appraisal Meets or Exceeds Purchase Price

This is ideal news. If the appraisal comes in at or above your agreed purchase price, the loan moves forward as planned. An appraisal higher than the purchase price means you’re getting a good deal and building equity from day one.

Low Appraisal

If the appraisal comes in below your purchase price, you have several options:

• Renegotiate the purchase price with the seller using the appraisal as evidence
• Pay the difference between the appraised value and purchase price in cash
• Walk away if you have an appraisal contingency in your contract
• Request a second appraisal if you believe the first was inaccurate

Understanding the Appraisal Report

Your report will include detailed information about the property, photos, floor plans, and a market analysis comparing your home to similar properties. Pay attention to the final value conclusion and how the appraiser arrived at that number.

If you disagree with the appraisal, you can provide additional comparable sales data to support a higher value, but remember that appraisers must remain objective and aren’t obligated to use your suggestions.

Tips for Success

Include an appraisal contingency in your purchase agreement that allows you to renegotiate or walk away if the appraisal comes in low. Make sure you understand this protection before signing your contract.

Competitive markets can tempt buyers to offer well above asking price, but ensure you have cash available to cover any difference between your offer and the appraised value.

As the buyer, you have little control over the appraisal outcome. The appraiser is an independent third party whose job is to provide an unbiased opinion of value based on market data and property condition.

What Happens Next

Once you receive the appraisal report, review it carefully with your real estate agent and lender. If the appraisal supports your purchase price, you’ll move forward to final loan approval and closing. If issues arise, work with your team to explore your options and make the best decision for your situation.

Remember that appraisals protect both you and your lender from overpaying for property. While a low appraisal can be disappointing, it’s better to know the true market value before you commit to a 30-year mortgage.

Key Takeaways

• Appraisals typically cost $300-500 and take 1-3 weeks from order to completion
• The appraiser examines property condition, size, and compares to recent neighborhood sales
• You can help by ensuring the seller knows about the appraisal and any recent improvements
• Include an appraisal contingency in your purchase agreement for protection
• Low appraisals offer opportunities to renegotiate or walk away if terms aren’t favorable