Whether you are buying, selling, or refinancing, a home appraisal is an integral step in the mortgage loan process. The outcome of a home appraisal helps to establish the objective value of a home. Here is a step-by-step guide explaining the steps of a home appraisal process and what to consider along the way.
When do I need a home appraisal?
You’ll need a home appraisal when you are:
- Buying a home using a mortgage
- Selling a home
- Refinancing an existing mortgage
Who orders the appraisal and why?
When you apply for a mortgage, your lender orders an appraisal which gives an unbiased property valuation on the fair market value (FMV) of the home.
It’s critical to have an objective assessment of your home to be certain it’s priced accurately. An appraisal is typically coordinated by a lender and performed by a licensed professional.
For Home Buyers:
- An appraisal is one of the first steps in the closing process
- If the appraisal is above contract price, the transaction will proceed
- If the appraisal is below contract price, the transaction may be delayed
- A low appraisal can serve as a negotiation tool
For Home Sellers:
- An accurate, low appraisal indicates that you may have to lower your asking price in order to make a sale
- Recent low sales in your area can decrease your home’s value
- If your home is in a superior condition compared to other properties in your area, it may inform the appraiser that your home is worth more
For Refinancing Homeowners:
- If you are refinancing, your home must appraise at or above the amount you wish to refinance at in order to be approved for a loan
- A low appraisal can potentially prevent you from refinancing a conventional mortgage
- If, however, your mortgage is an FHA mortgage, you are able to refinance without an appraisal and instead through an FHA streamline refinance
What determines a home’s value?
- Comparable properties that have recently sold in the area.
- Location of the home and how the neighborhood influences the value of the property. Conveniences such as local school districts, nearby restaurants, shopping centers, parks, and community centers can all impact the perceived value of a home.
- General condition and age of the home along with the history of ownership over the years; how many times it sold for and for what amount.
- Square footage, lot size, number of bedrooms and baths.
- Upgrades and any required repairs such as windows, roof, and appliances accounted for.
- Features and amenities such as HVAC system, solar energy, water supply, swimming pools and wood flooring can help add to a home’s value.
What do appraisers look for?
- Appraisers look for permanent fixtures in your home and their visible condition; they are not evaluating based on the decor of your home. In order to determine your home for what it’s worth, it’s important to prepare your home’s observable condition to boost appeal.
- To prepare for a home appraisal and improve your home’s value, some things to consider:
- Fix common repairs such as lights, bathroom and kitchen caulk, doors, plumbing, and any broken appliances.
- Be sure that everything in your home is in working order.
- Keep in mind that appraisers often account the value of a home in $500 increments so minor home repairs can add up quickly.
- Ensure safety equipment is installed and in working order, such as smoke alarms and home security systems.
- Generally, kitchens and bathrooms hold the highest return on investment along with flooring and landscaping improvements. It’s important to consider making changes that will add the most to your home’s value.
- Strengthen your home’s curbside appeal – if there are visible changes to the outside of your home you can make such as an outdated roof, chipping paint or overgrown grass, the allure of your home will improve.
- Consider touch-ups to your home’s interior too, such as paint touch-ups or window cleaning and repair. Well cared-for homes tend to hold higher value.
- Keep a log of any repairs, upgrades or improvements that you’ve made over the years so you can point them out to the appraiser and highlight the care that has been put into your home.
- Create a checklist for projects to complete prior to your home appraisal.
Other Facts to Consider Regarding a Home Appraisal
- For single-family homes, appraisers generally use a Uniform Residential Appraisal Report to determine property value based on their observations.
- In some cases, a lender may be willing to waive an appraisal. A Property Inspection Waiver (PIW) is “an offer to waive the appraisal for eligible transactions.” A PIW may not be viable for all homebuyers.
- If you pay a Mortgage Insurance Premium (MIP), a way to lessen your MIP is to get a new appraisal.
A home appraisal is a key step in the closing process whether you are buying, selling, or refinancing. It’s important to make your home as appealing as possible if you are selling or refinancing. A fundamental understanding of the steps of a home appraisal process can only work to your advantage.