How Does the Appraisal Process Work?

Dec 5, 2018Buying Basics

You’ve found your dream home. Now, let’s say the asking price is $300,000–an amount you’ve already been pre-approved for by your bank. But is the home really worth that amount?

This is the exact question at the heart of a home appraisal. The worth, or value, of the property will determine how much a lender is willing to give you to buy that piece of real estate.

A crucial step in getting the financing you need is a home appraisal–a sometimes confusing part of the mortgage process in which both buyer and seller must depend on the expert opinion of a third party.

A real estate appraisal is a report featuring the expert opinion of a certified, state-licensed professional who determines the value of a piece of property. If the appraisal reveals that the home priced at $300,000 is truly worth only $200,000, a NAEBA buyer agent can help you negotiate a better deal.

Understanding the Appraisal Process

The lending institution through which you are getting your loan will initiate a request for real estate appraisal. The passage of the Dodd-Frank Act has changed the way home appraisals are ordered. The lender has little or no contact with the appraiser until after the work has been performed, so there is no “undue influence” on the appraiser to value the home at a certain price.

Lenders are no longer allowed to choose a specific appraiser. Still, you can (and should) request a local appraiser who is familiar with the market conditions in your area. Your NAEBA real estate agent can help find the best appraiser for your property.

Cost of Appraisal

The cost of the home appraisal is traditionally the buyer’s responsibility and is typically paid at closing as part of the closing costs.

Costs for an appraisal vary by region, but for a single-family home or condo, it will usually range from $300-$500. Costs will be higher for more complex properties, such as multi-unit or rentals.

If the appraiser recommends repairs to be completed prior to closing, the appraiser may have to come back out to the property to certify completion after the repairs have been made. The cost for this is usually $100-$150.

How the Value of a House is Determined

Once the appraiser has finished inspecting the home, they pull recent sales information from MLS or public records. They then compare those homes to your property to see how it stacks up against the competition. This is referred to as “comps.”

This is most easily done in a recently built subdivision, where there are only a few different house styles to choose from.

Calculating Comps

Most agents calculate comps by identifying the closest match to the property in question as close in proximity as possible and then checking when and for how much those homes were most recently purchased. It is ideal to find a similar property that was sold in the last 30-90 days.

However, not every home has an exact duplicate. When this happens, the appraiser must consider other factors, like location, arguably the most influential factor of property value.

While the appraiser compares the subject home to similar homes recently sold, the appraiser can’t go see them because they are no longer on the market. Since they can’t walk through the home in person, they must rely on images from MLS.

If you know something about a nearby home that you feel affected the sales price of your prospective home, share the knowledge with the appraiser in a written letter.  A NAEBA real estate agent can help you work through this process.

Final Appraisal Report

Once the appraiser has inspected the home and compared it to recently sold properties, they will write up a report, giving their estimate of the value.

The report will include the specific addresses of the homes they used as comparable properties, along with a description of the actual appraised property, a map marking the location of the home, a picture of the property, and a general condition of the current real estate market.

A dedicated NAEBA buyer agent can help you find a local appraiser you can trust to review the value of your property before you agree to a sales price. Find a local realtor in your area today!


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