A guide to home appraisals

Home appraisals are a key part of buying, selling and refinancing homes. A home’s appraised value can impact the mortgage amount the buyer is approved for.

So how do home appraisals work? What do appraisers look for? And how much do home appraisals cost? Find out the answers to these questions and more.

Key takeaways

• A home appraisal is a written document showing an appraiser’s opinion of how much a property is currently worth. It’s a typical part of the homebuying or refinancing process. 
• Home appraisals are ordered by the mortgage lender. But the homebuyer is typically responsible for the cost of the appraisal. 
• How much a home appraisal costs and how long it takes depend on things like the home’s size, location, condition and any lender-specific requirements the appraiser needs to meet. 
• Sellers and refinancers can get ready for an appraisal by boosting the home’s curb appeal, cleaning and decluttering, collecting important documents, and doing small repairs. 
• Buyers can prepare for an appraisal by understanding their purchase agreement’s contingencies, remembering that the appraisal results are out of their control, and keeping their budget and financial goals in mind.

A home appraisal is a written document that shows an opinion of how much a home is worth at that point in time. 

Appraisals are typically performed by a licensed or certified appraiser before someone buys a home or refinances their mortgage. In fact, many mortgage lenders require an appraisal before approving someone for a new loan. That’s because lenders want to make sure the home is adequate collateral for the loan.

Appraisals may also help homebuyers feel more confident that they’re not paying more than a home is currently worth. 

Keep in mind that the appraised value of a home isn’t the same as the fair market value, although they may often be similar amounts. Fair market value is the price a buyer and seller agree to under normal market conditions. And the appraised value is determined by the appraiser.

Here’s how the home appraisal process generally works: 

1. The lender will order an appraisal from a licensed or certified home appraiser after the buyer makes an offer on the home but before approving them for the mortgage loan.
2. The appraiser will schedule and perform the appraisal. This may be done on-site or virtually. And the appraisal may include interior and exterior inspections or only an exterior inspection.
3. The appraiser will conduct additional research, like looking at county and municipal records, Multiple Listing Service records, and recent sales of comparable properties in the area or in similar areas. 
4. The appraiser sends their report to the lender. 

The homebuyer is also entitled to free copies of the appraisal report no later than three days before the closing date. It’s important to review the appraisal closely. And if you spot anything that looks inaccurate, let the lender know right away. 

But while the copies of the appraisal report are free, buyers are still typically charged for the cost of preparing the appraisal. 

A home appraiser may consider things like: 

• Recent sale prices of comparable properties in the area and the cost of building a similar home in the area from the ground up
• Square footage, layout and lot size
• The condition of things like the roof, foundation and appliances as well as the heating, cooling and electrical systems
• Upgrades, renovations and remodeling as well as special features like pools, decks, fireplaces, sprinkler systems and garages
• The neighborhood and whether the home is at high risk for things like floods and wildfires 

There are many things that may negatively affect a home’s appraised value. Here are a few to know about: 

• Home age: Older homes might not appraise as highly as similar homes that have been updated. 
• Old or broken home systems: Having HVAC, plumbing and electrical systems that are old or not functioning like they should may lower a home’s appraised value.
• Environmental concerns: Homes with increased risk of environmental threats may have a lower appraised value compared to homes in less risky areas. For example, an appraiser may determine a home in a flood zone is worth less than a comparable home outside the flood zone. 
• Pest damage or infestation: Evidence of current or past pest infestations could result in a devaluation. 
• Slow real estate markets: Market conditions can also impact a home’s appraised value. If the area is growing and homes are selling fast, then the appraiser may decide on a higher value. But similar homes in slower markets with less demand may have lower appraised values.

The cost of a home appraisal may vary depending on the home’s size, condition, location and how much detail the appraiser has to report on. 

For a single-family home, the cost of a home appraisal may be several hundred dollars. And for a multifamily building, it could cost more. Appraisals also may be more expensive in areas with a higher cost of living.

And remember, while the lender orders the appraisal, the buyer is typically responsible for its cost. 

The appraisal itself may take anywhere from a few minutes to several hours. But scheduling an appraisal can take anywhere from a few days to a few weeks, depending on the complexity of the job and the appraiser’s schedule.

Here are a few tips that might help refinancers, sellers and buyers prepare for a home appraisal: 

For refinancers and sellers

Prepping your current home for an appraisal? Consider the following before the appraiser arrives:

• Think about curb appeal. Taking some time to rake leaves, mow the lawn, trim the hedges and add to your landscaping could give your home’s curb appeal a boost—and potentially raise its appraised value too. 
• Clean and declutter. It won’t hurt to tidy and declutter your home before the appraisal to show your home at its best.
• Document home improvements, repairs and renovations. Have you renovated your kitchen or updated your HVAC system? Give your appraiser photos and receipts to make sure they take any improvements and renovations into account. 
• Gather important documents. The appraiser may ask for things like a land survey and proof of your home’s last sale price. So it’s a good idea to collect any important documents before the appraisal.
• Take care of small repairs. Doing little things like touching up the paint, replacing burnt out lightbulbs or replacing broken tiles can help a home look better for the appraisal.

For buyers

Buyers don’t need to worry about cleaning or taking care of repairs before an appraisal. But they do have a checklist of their own to keep in mind. 

• Understand contingencies. Before making your offer, it’s important to know about any contingencies you want to include in the purchase agreement. One common contingency is a home appraisal contingency, which lets buyers back out of the agreement if the appraisal comes back lower than expected.
• Remember that the appraisal is out of your control. Appraisal results are out of your hands as a buyer. But if the appraisal doesn’t go as planned, you may be able to renegotiate or walk away.
• Keep your budget in mind. Shopping for homes in a seller’s market can put pressure on buyers to offer an amount that’s higher than a home’s appraised value in order to secure the deal. But make sure you always keep your budget and financial goals in mind. That way, you can avoid making a risky buying decision that may lead to becoming house poor.

Home appraisals are a key part of the home buying or refinancing process. And understanding how the home appraisal process works, what appraisers look for and how to prepare for an appraisal can help demystify the entire process. 

Getting ready to buy your first home? Check out these guides on first-time home buyer loans and down payment assistance programs.