All about appraisals

May 17, 2022
Posted in Programs
May 17, 2022 derekevansteam

Whether you’re purchasing or refinancing, an appraisal is going to be an important step in the process. In short, an appraisal is when an expert assesses your home to determine its value. If you’re purchasing, the results of the appraisal will have a huge effect on the amount you can borrow. In this article, we’ll go over everything you need to know about this process and what to expect.

What is a home appraisal?

As we mentioned above, an appraisal is when an expert, called an “appraiser”, goes into your home and assesses a number of factors to determine the market value of the property. In both a refinance and a home purchase an appraisal is used to understand the home’s value and determines the amount at which to lend on. Some of the things appraisers look at when assessing property value are:

  • The condition of the property
  • Square footage
  • Location
  • Curb appeal
  • Determining if there are any hazards or liabilities
  • Local amenities
  • Similar properties that sold in the area within the past year, AKA “comps” 

How an appraisal can affect you

As a buyer

The appraisal will determine your maximum loan amount. For example, if you want to use a conventional loan to purchase a $200,000 house, the maximum loan-to-value (LTV) for this loan is 97%, or $194,000. If the home appraises for only $190,000, you’ll need to find a way to make up the $10,000 difference (as the lender will only be able to lend 97% of the appraised value of the home). Alternatively, you could negotiate with the seller to see if they will come down on price. This might actually be a win for buyers, as you could get a better deal on a home than you originally thought if the seller is willing to come down on the price to make the deal happen.

In a regular market, it’s likely the seller will agree to the lower price so they can move forward in selling. However, as we’ve seen in the unprecedented real estate market of 2020-2022, many hopeful homebuyers are waiving appraisal contingencies in hopes of getting their offers to stand out. This appeals to the seller because of the aforementioned scenario, as the buyer is basically saying “we don’t care if the home appraises for lower than our offer, we will cover the difference.” 

As a homeowner looking to refinance

Appraisals are also a key element to the process of refinancing. The point of refinancing is to replace your current mortgage with a new loan that has more favorable terms. This is typically done when interest rates are low so homeowners can decrease their monthly payment amount. You can also use it to tap into the existing equity on your home. However, this can bite you if for whatever reason you get an appraisal and the appraiser finds that your home is worth less than expected.

Home appraisal process and cost

The home appraisal process kicks off typically after the seller of the home accepts an offer from a buyer. As the buyer, you will be responsible for the cost of the appraisal unless stated otherwise in the offer. This will typically run you between $300-1500. The appraiser will then schedule a time with the seller to come out and assess the property, which can take anywhere from minutes to a couple hours. They will draft up an appraisal report based on the home’s condition and recent comparable sales in the area which is then shared with the buyer and the buyer’s mortgage lender. The report can take anywhere from a week to 10 days to be completed. The seller can also acquire a copy of the report if they wish.

Final things to keep in mind

Appraisals are a good and necessary step. Depending on how your real estate agent structures your offer, the appraised value may allow you to avoid overpaying for a home, or take on the agreed risk to overpay in a competitive market. If the seller is willing to come down on the price, it will certainly work to your advantage. In either case, you’ll have the peace of mind of knowing the home’s true value.