The Home Appraisal Process: What Homebuyers and Sellers Should Know

There are many important steps to buying or selling a house. One aspect that homebuyers and sellers often have questions about is the home appraisal process and how it impacts them in regards to the home sale. It’s important for both buyers and sellers to understand this process so that your home purchase, or sale, goes as smoothly as possible.  

What exactly is a home appraisal?

During a home appraisal process, a licensed, independent real estate appraiser gathers information about the house and surrounding property to give an estimate of its current market value. Most often, appraisals are ordered by the lender who is involved in financing the mortgage for the buyer. The homebuyer typically pays for the appraisal either up-front or at the time of closing.  

Why is the home appraisal process so important?

A home appraisal is important for all parties involved in the transaction: the lender, the seller, and the homebuyer

The lender wants proof that the amount of the loan does not exceed the value of the home, or they end up taking on more risk in the event you default on your loan and go into bankruptcy. In that instance, the lender might not be able to sell the home for the same amount of money it loaned out and could lose money.

The home appraisal process is important to the seller because it tells them how much their home is worth (the fair market value of their property) and if they priced their home correctly. If they priced their home too low, they may not recover all the equity they have acquired while owning the property, essentially leaving money on the table. If the seller prices the house too high, they’ll likely have to renegotiate with the buyer to either drop their price to the appraised value or see if the buyer is willing to pay the extra cost out of pocket. Learn more about how to determine your home’s value

An appraisal is important to the buyer because it provides proof that the property has been priced fairly, and hopefully appraises for at least the offer price they submitted to the seller. If the home appraisal comes in lower than their offer, the homebuyer will have to renegotiate with the sellers or possibly pay more out of pocket since the lender won’t cover the full amount.

What happens during a home appraisal?

Simply put, during the home appraisal process the appraiser comes to the home and makes a thorough inspection of the property, inside and out. They measure each room and the lot the property sits on, as well as photograph each room and the exterior of the property.

Once the appraiser has all the information they need, they write up their findings on the Uniform Residential Appraisal Report form and the completed report is then sent to the buyer’s lender.

What type of information is on the home appraisal report?

1. Subject

In this portion of the form, basic information is shown such as the address of the property to be appraised, who the borrower is, who currently owns the house, what the real estate taxes are for the home, who the lender is, and whether or not the house has been up for sale within the past twelve months.

2. Contract

This section of the report states whether the appraiser analyzed the sales contract. It also states the contract price and the date the contract was executed along with information describing any sales concessions being paid on behalf of the borrower.

3. Neighborhood

A description of the neighborhood along with housing market conditions and neighborhood boundaries is shown in this section. Characteristics of the neighborhood such as urban, suburban, or rural are described, and the appraiser states whether the values of other homes in the area are increasing, stable, or decreasing in value.  

4. Site

The Site section describes the land the property is on. In this section, you’ll find the site’s dimensions, shape, view, and whether it conforms to current zoning. Also included is information about the utilities that service the house, whether those utilities are public or private, and if that is typical for the area. Finally, the appraiser comments on any adverse site conditions, such as soil or ground conditions.

5. Improvements

In this portion of the appraisal, the appraiser gives a general description of the property, including the condition of the foundation, the exterior, and the interior of the house. The garage and driveway surface, the attic, the appliances, the fireplace, and the porch and deck are also included under Improvements. This is where the appraiser states the square footage of the house, describes any additional features of note, gives an overall description of the property’s condition, whether any physical deficiencies were noted, and states if the property conforms to the neighborhood.

6. Sales Comparison Approach

The Sales Comparison Approach section of the home appraisal process is where the appraiser arrives at a value and substantiates the value of the house being appraised. This is done by locating comps, also known as comparable properties. Comps are houses that are as close as possible in structure and features to the house being appraised. When locating comps, appraisers also take into consideration properties close in physical proximity and if they were sold within the last year. The appraiser gives a detailed description of each comp, including address, selling price, square footage, and features, among other things. They use this information to arrive at a market value for your property.  

7. Reconciliation

In the Reconciliation portion of the appraisal, the appraiser states what the appraised value of the property is, and whether this value is made “as is” or subject to any necessary repairs.

8. Additional Comments

In this section of the appraisal, the appraiser can write any additional information to help support the market value they arrive at. They can also write any important information that wasn’t included elsewhere on the appraisal form.  

9. Cost Approach

Cost Approach is a type of home valuation method that appraisers often use when appraising a newly built home. It is the cost of land plus the cost of construction, minus any depreciation.

10. Income Approach

The Income Approach to evaluating a property is primarily used when appraising apartment buildings, offices, and condominiums, or any other property that generates income.

11. PUD Information

This section deals with establishing an appraised value for a PUD home or, a home located within a Planned Unit Development. PUDs are neighborhoods with a master plan that are single-family homes or attached homes. In a PUD, the homeowner owns the home and the ground beneath it. This is unlike a condo, where the owner only owns the interior walls and space within those walls.  

What can be done to make a house stand out during the home appraisal process?

You may be wondering how you can increase your home appraisal value. The answer to this is yes, there are things you can do to put your home’s best foot forward, and it starts with deep cleaning and decluttering.

Appraisers are required to follow strict regulations, but much of their job is subjective. By cleaning thoroughly and making a good impression with landscaping and curb appeal, you are showing the appraiser that yours is a well-maintained home. Decluttering is a good idea because the appraiser will take pictures and measurements during the home appraisal process. Household items left in the way will detract from the appraiser’s ability to do their job. See more on what hurts a home appraisal and what you can do to fix them.

The next thing you can do is go through each room and fix any items you can, such as drippy faucets or squeaky doors.  

Finally, compile a list of upgrades you have done to the house, both aesthetic (new kitchen countertops) and functional, (new HVAC system), and provide the list to the appraiser. This will help the appraiser see the extra value you have added to the home, and it just may help them justify their final appraised value of the property.

The home appraisal process is just one of many important facets to buying or selling a home, and the more you understand the process, the smoother the whole transaction can be.  


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