A home appraisal may not be top of mind when you're looking to buy, sell or refinance a home. But maybe it should be: An appraisal determines for the seller, the buyer and the lender how much a home is worth. The purpose is to protect the buyer and the lender from paying too much.
What Is a Home Appraisal?
When you have your home appraised, a professional visits the property and inspects both inside and out.
The goal of an appraisal is to come up with an estimated market value for a particular property, based on its characteristics and market conditions. Appraisers seek to determine the fair market value that a typically motivated buyer would pay for a home. After a visual inspection, the appraiser creates a report that explains how the value of the home was determined and what that estimated market value is. Although the value is ultimately the opinion of the appraiser, it is meant to be an unbiased, expert assessment.
Appraisals can be coordinated by either the buyer or seller. If you are planning to sell your home, getting an appraisal can help choose an appropriate listing price that will attract qualified buyers. However, appraisals most typically take place during the mortgage approval process. The lender will order an appraisal to ensure that the home's value is in line with what you're planning to pay for it. Since the property serves as the loan collateral, the lender wants to be sure you aren't overborrowing, which could result in a loss if you aren't able to make your payments. If the property is not worth what you are paying for it, then they will not loan you as much as you are going to need.
Even though it's the lender that requires an appraisal, the borrower is usually the one who pays for it. Generally, home appraisals cost around $500 in New York City. Factors that affect the cost include the size of the home, its condition, the location, how detailed the report needs to be and more.
Regardless of whether you order a home appraisal as a buyer or seller, it's important to have it scheduled as close to the sale date as possible. Market conditions can change dramatically over just a few months.
What Do Appraisers Look for During a Home Appraisal?
Most appraisers use Fannie Mae's Uniform Residential Appraisal Report to evaluate a property's condition, size and layout, as well as any desirable qualities or drawbacks. That can include square footage, number of bedrooms and bathrooms, overall condition, and health and safety issues. They also observe things about the surrounding area, like the land the building is on, the type of homes in the immediate surrounding area and any negative features like loud roads, power lines, airport noise, etc.
Once observations are done, the appraiser moves into the analysis portion of the process: They take all of these factors into consideration and compare the subject property to other homes that have sold recently in the immediate area.
In fact, similar home sales in the area is one of the most important factors in a home's appraisal. Appraisers look for sales that occurred within six to 18 months and within a mile of the subject property, for homes that have similar features such as age, size and amenities. These are referred to as "comps." Appraisers typically want at least three comparable properties to come up with a good median price value of the home.
For example, if homes sold within the last year ranged in price from $750,000 to $1,200,000, the appraiser would start with this range in mind and then adjust up or down. If the subject property has a private yard or a remodeled kitchen, for instance, the appraiser may go with the higher end of that range.
Ultimately, the goal is to determine what sale price a buyer and seller would agree on at that given time. This process usually takes about a week, though timing depends on the time of year and complexity of the report.
A Real Estate Agent Can Affect a Home Appraisal
Home appraisers are independent professionals who do their best to come up with an objective property value based on data. That means other interested parties, such as real estate agents, should not have influence over the result. However, a real estate agent can assist in the appraisal process by providing detailed knowledge of the property. If you're selling your home, your agent will meet with the appraiser to go over recent home improvements and other pertinent details. The agent can also help point the appraiser toward other comps in the surrounding area.
Source: U.S. News