What is an Appraisal?

Whether you’re a home shopper, home seller, or a homeowner preparing to refinance, you can expect to hear the term “appraisal” mentioned throughout the transaction and refinancing process. The appraisal of a home is one of the most important steps taken in a real estate transaction and impacts both parties. It’s also a key factor in refinancing a mortgage loan.

Here’s what you need to know about home appraisals, no matter which scenario you fit into.

What is a Home Appraisal, and Why Does it Need to Be Done?

When you’re buying a home, or planning to sell your home, you need to know the price of the property. But this dollar value isn’t pulled out of thin air, or based on the perception of the home seller and their agent. If you’re planning to refinance, you need to know the current value of your home to understand your next steps in securing a change to your mortgage loan.

A home appraisal is what determines the true value of the home. The appraisal is performed by a licensed or certified home appraiser who is responsible for providing an impartial, honest, and unbiased evaluation of the home. Home appraisals are typically ordered by the mortgage lender. This is because lenders need to know the true value of the property in order to know the amount they will lend a prospective buyer.

By having an appraisal of the home’s true, fair market value, a buyer won’t end up overborrowing on their mortgage loan. The appraisal also helps mortgage lenders determine things like how much a buyer will need for a down payment, the interest rate on the loan, and whether or not the buyer will be approved for the full loan amount.

What Happens During the Appraisal Process?

The appraisal process traditionally takes place in person, with the appraiser visiting the property, but it can also depend on what the mortgage lender requests. An appraiser can assess the home based solely on its exterior in a process known as a drive-by appraisal. They can also perform a hybrid appraisal, where they use third-party data to assess the property, such as its historical listing on real estate portals. Lastly, appraisers can perform a virtual appraisal online, which is called a desktop appraisal.

Regardless of the method used by an appraiser, the things an appraiser reviews and evaluates are consistent. A certified appraiser will review factors like:

• Recent sales of comparable properties near the home
• Current trends in the local market where the home is located
• The floorplan of the home, such as the number of bedrooms, bathrooms, and square footage
• The amenities and features of the home
• The overall condition of the home
• Surrounding features, like a natural view or proximity to a highway

The appraisal process can take anywhere as little as 15 to 20 minutes, to up to several hours. The timeframe is dependent on the condition of the home, local laws, and the appraisal process the appraiser is using.

How Does a Home Appraisal Differ from a Home Inspection?

If you’re a savvy buyer, seller, or homeowner, you may be wondering what the difference is between a home appraisal and a home inspection. While they have some overlap with what they’re reviewing, they differ in their function and end goal. As we’ve discussed thus far, a home appraisal reviews the property holistically to assess the home’s value. On the other hand, a home inspection carefully evaluates the safety and quality of a home, so prospective buyers and sellers know the true state of the home — and any risk associated with it.

Home inspections can impact the final sale price of the home, especially if the prospective buyer will have to make unexpected repairs, or even impact the sale price if the home seller opts to make upgrades and repairs themselves. If you’re refinancing the home you own, you don’t need to factor in another home inspection.

What’s the Result of an Appraisal?

Once the home appraisal is complete, the appraiser compiles their findings and evaluation in a report. This report is then shared with the home buyer’s mortgage lender or the mortgage lender of a homeowner seeking refinancing. The mortgage lender will share the findings with whomever is borrowing from them. Fannie Mae’s Uniform Residential Appraisal Report crucial details needed to assess the true, fair market value of the home.

How is the Appraisal Used?

Once the mortgage lender has the home appraisal report in hand, they can get to work on evaluating the mortgage loan amount and associated terms for the prospective buyer. For a homeowner seeking refinancing on a conventional home loan, it’s crucial to remember that the home's appraisal must be at or above the amount you’re seeking for your loan refinancing for it to be approved.

If you’re a buyer or seller ready to get hands-on, expert help navigating the home appraisal process and everything in between, you need to connect with a professional real estate agent to ensure your transaction runs smoothly. You can get in touch with top real estate agents today on RealEstateAgents.com!