If you are buying, selling, or refinancing a home, you will likely go through the appraisal process. This will be a key component of your transaction. So, you’ll want to understand how the appraisal process works. It will also be helpful for you to understand how an appraiser determines a home’s value.
So, what is an appraisal?
An appraisal is an estimate of the value of a home. All lenders order an appraisal during the mortgage loan process. It is an objective way to assess the home’s market value. It also ensures that the purchase price of the home is justified.
Highly-trained professionals conduct appraisals. Their license helps determine the value of a home fairly, objectively, and without bias. No appraiser is perfect. However, their opinion of your home’s value is informed by training and tests. In addition, they are required to provide evidence for every finding in their reports.
How does it work?
The appraiser will go to the home and conduct an inspection. They will examine the home’s interior and exterior. This includes measuring the square footage and evaluating the home’s features. Next, they analyze the location of the property and recent sales information for similar properties (aka “comps”). Finally, the appraiser will create their appraisal report. On average, this process takes seven to ten days.
For home buyers or sellers, if the appraisal comes in “at value,” everyone is happy. The sale of the home is able to move forward towards closing. However, if it comes in low, there are a few options. This could include re-negotiating the purchase price, paying cash for the difference, or submitting a rebuttal.
For refinancing homeowners, if the home appraises at or above the amount you want to refinance, your loan will move forward. However, if you’re refinancing a conventional mortgage, a low appraisal can prevent you from doing so. Other loans, such as FHA, don’t always require an appraisal for refinancing.
The bottom line
When everything goes smoothly, the home appraisal is just another box to check. When the appraisal value is lower than expected, the transaction can be delayed or even canceled. Regardless of which situation you encounter, a basic understanding of the process can only work in your favor.