How Does the Home Appraisal Process Work for Buyers?

A home appraisal is an unbiased professional opinion of a home’s value based on recent sales of properties nearby.

But who appraises your home?

An appraisal is conducted by an appraiser who is an independent third-party contracted (often by the mortgage lender) to establish the property’s value. This gives you a report on the condition of the property and its fair market value. The appraisal can also establish an “as-is” value and a “subject-to” value in the case of a rehab—that means determining what it’s worth now (as-is) and what it should be worth after renovation (subject-to).

You only need to complete an appraisal if purchasing the property through a loan or doing a refinance. However, it’s strongly suggested that you complete an appraisal on a property even if you purchase it in all cash to establish your after-repair value (ARV).

What is the home appraisal process?

You personally do not have to find an appraiser (unless you are purchasing with all cash). However, you do have to keep track of the process to ensure your earnest money is protected.

Start the lending process

As soon as you put a property under contract, contact your mortgage lender to start the lending process. I generally email the signed purchase agreement as soon as it is executed.

Since the appraisal can take a few weeks to complete, the lender will immediately collect payment for the appraisal and order the appraisal through a third-party appraisal service. The lender doesn’t even decide who the appraiser will be.

Pay attention to deadlines

Verify that the appraisal has been scheduled, then mark your calendar. Remember, you have a deadline to meet in your purchase agreement, and you don’t want to lose your hard-earned earnest money just because you missed a deadline.

Pro tips: Even though the sellers normally already care about the appraisal process and how well the property appraises, make sure to involve them in the process and that they are fully aware of when the appraisal will happen. They should want to do their best to help you achieve the value you need to close.

Prepare in advance

Have a packet ready for your appraiser to help with the process. Include three to five “as-is” comps (comparables) sold in the area in the last six months. If you are doing a “subject-to” appraisal, include your proposed construction budget and three to five “subject-to” comps that have sold in the last six months. The appraiser may or may not use your packet; however, this could help if they are unfamiliar with the area or want to better understand the level of rehab you are looking to do.

Extend the deadline (if necessary)

Once you know the appraisal is complete, contact your lender to find out when the report will return. If you need to extend your appraisal objection deadline, ask your Realtor to get a signed amend and extend agreement so you can protect your earnest money.

Review the appraisal

Once your appraisal report comes back, review it with your Realtor. If you met or exceeded the appraised value you needed, congrats. If not, then you’ll have some work to do.

How much does a home appraisal cost, and how long will it take?

While this amount depends on the type of property being appraised, it is generally accepted that a typical single-family home appraisal will cost $300 to $450. If your home is much larger than the average home, it may cost more to appraise the property as it takes more time to measure and assess the area in full.

You should also expect to pay more if the home has a lot of damage because that requires more effort on the appraiser’s end. If your property has seasonal challenges or conditions, that may also affect the fee amount.

Home appraisals from a seller’s perspective

If the rooms are not clean or are cluttered, the appraiser may not be able to get an accurate feel for the home’s condition. Too much in the room may cause it to feel smaller or hide improvements you want to consider in the appraisal. Some clutter to watch out for is:

Clothing, especially in the bedroom. Clothing has to be put away in your closet or armoire or bureau. You do not want them on the floor, on the bed, or scattered about.
In the kitchen, your counters must be clear of clutter. You’ll want to store your appliances in cabinets and put all dishes away on the day of the appraisal. You might also want to touch up the walls (that is, paint or wallpaper) too.
Living rooms often suffer from a lack of good lighting and using the space wrong. Rearrange your furniture a bit. Play around to see what opens up the room and what closes it off. Pick whatever makes the room look its best. Get rid of old furniture if you can and swap out old lightbulbs for new ones.

If you plan to do upgrades before a home inspection, such as to the exterior, keep a folder with documentation of those upgrades. You can take before and after photos, keep receipts to show costs, and present these to the appraiser because they need to see the work you have done on the home. Over time did you add a central cooling unit or a fence in the backyard? Did you pay a contractor to do this work? If so, keep those invoices and permits. Remember that only permanent upgrades count toward your appraisal value.

If you have an appraiser coming to your home in a few weeks, you won’t have time to add another room or install a patio in your backyard. However, there are plenty of small upgrades you can make to your home that can increase your home’s appraisal value. Use these affordable and quick ideas to get started:

Replace your hardware. Handles on cabinets and drawers can become rusty or stained over time. Replacing them takes little more than an afternoon but can add considerable aesthetic value to your home.
Remodel your ceiling. Is your home a relic from the ’80s? If so, the chances are that you have a popcorn ceiling. You can add value to your home by removing it. Though this can get messy, it’s a relatively inexpensive renovation that can score you a higher market value.
Add a kitchen backsplash. It’s a fun way to improve the look and feel of your kitchen. Got an appraiser coming in just a few days? You can use a peel-and-stick backsplash to add color and avoid working with grout.
Consider more intensive renovations like adding in hardscaping or replacing old appliances if you have a little more time. However, be 100% positive that these renovations will be completed before your appraisal. The last thing you want is for your home to be a construction zone when your appraiser arrives.

Research comparables, which are homes in the neighborhood that are similar in the number of rooms and bathrooms, similar in location, and have similar overall square footage as your home. Researching these homes can help you understand what you can expect from the appraiser.

Before having your home appraised, ensure that everything works. Repair what doesn’t. For example, test your heating and cooling systems and how long it takes for your home to reach a certain temperature, and check your home security system to ensure the code works and the system functions.

Another important step is to check the windows and doors in the home. Open and close them, check the locks, confirm there is no warping or cracking. Test all appliances in the home, from the dishwater to the oven to ceiling fans. Everything needs to be functional, or it could affect the appraisal and thus the sales price.

If your appraisal falls short, the deal isn’t dead yet. Here are a few ways to resolve this:

Step 1: Check the report for errors. If there are any, contact your mortgage lender and then complete their appraisal objection form.

Common errors are missed bedrooms, bathrooms, garages, square footage, and using incorrect comps. I’ve seen bedrooms missed, bathrooms excluded, and square footage not accounted for on my personal deals.

Step 2: Review the comparables the appraiser used. Were they in the right area? You can include notes and suggested comps on your lender’s appraisal objection form.

Step 3: Schedule a time to speak to the appraiser to get their verbal feedback and comments.

Most important, remain respectful at all times during the process. The last thing you want to do is create a stalemate in the objection process.

Home appraisals from a buyer’s perspective

Suppose the appraiser raises the value, great. If the appraiser doesn’t, you still have some options to close the deal.

Pro tips: If you have done everything you can do to raise the value, it’s time to look at the deal from the other direction. Go back to the seller and negotiate a purchase price reduction. You can present the low appraisal to the seller to substantiate your claim.

First: You and the seller have to agree on a purchase price. Hopefully, they agree to lower the purchase price to meet the appraisal. Easy-peasy!

But if the seller won’t lower the purchase price, then the deal can’t move forward unless you bring extra funds to close or break the purchase agreement, citing the appraisal objection contingency (if you included one in your offer). As long as you do this within the appraisal contingency window, this should protect your earnest money in full. Or, you can find another way to close the deal using a different loan product (such as a hard money loan) or by finding private money.

While you can’t choose your appraiser, some third-party appraisal companies will allow you to request an appraiser to be removed from doing your appraisal. Therefore, it may be worthwhile to ask other investors in your area if they have a shortlist of appraisers with issues with and submit these names to your lender before the appraisal occurs.

Home appraisals from a refinancer’s perspective

The home appraisal is necessary because the lender wants to know what the property is worth. They don’t want to be stuck with a property worth far less than the loan they extend on it.

The appraiser who performs the appraisal views the property and decides on the final value of the home. This is done largely by comparing the subject property to similar properties that have recently sold in the immediate vicinity.

The lending institution through which you are getting your loan will initiate a request for a real estate appraisal. The passage of the Dodd-Frank Act has changed the way home appraisals are ordered. The lender has little or no contact with the appraiser until after the work has been performed, so there is no “undue influence” on the appraiser to value the home at a certain price.

Once the appraiser has inspected the home and compared it to recently sold properties, they will write up a report giving their estimate of the home’s value. The report will include which specific addresses they used as comparable properties to value the home, a description of the actual subject property, a map marking the home’s location, a picture of the property, and the general condition of the current real estate market.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.