Here’s What Really Happens During a Home Appraisal

If you’ve ever wondered how house appraisals work, you’ve landed on the right page. Although house appraisals may seem overwhelming with all the technical jargon and numbers, learning about them and what you can expect from an appraiser is key to feeling more comfortable with (and excited) about purchasing a house.

Ahead, appraisers explain how house appraisals work (along with their cost and general period of effectiveness), along with what they look for when conducting one. They also explain what the appraisal reports mean for you (and your lender, if you’re using one) throughout your home-buying process.

What Is a House Appraisal?

To put it simply, “a house appraisal is a professional, unbiased estimate of a property’s market value, typically used in real estate transactions to help determine fair market price for buyers, sellers, and lenders,” says Scott M. Loyer, SRA, a licensed residential real estate appraiser and chief appraiser at Connect Appraisal.

Julia Kusayeva, a New York state-certified general real estate appraiser and president at AAA Appraisal & Consulting, Inc., notes that a house appraisal is typically expressed as a numerical value or within a numerical range.

When it comes to how house appraisals work, you can expect your appraiser to create a report summarizing their findings once they complete the evaluation phase of the appraisal process. This report can then guide the next steps (oftentimes for a bank or credit union providing the person with a home mortgage loan).

What Do House Appraisers Look For?

House appraisers take many factors into account when conducting an appraisal.

“I go in and inspect and look at the condition of whatever I’m looking at whether it’s a condo apartment, a single-family house, or multi-family house, and describe what’s in there in terms of the boiler, the air conditioning, plumbing, electricity, conditions, number of bedrooms, number of baths, kitchen, and the condition of those,” says Ronald M. Gold, ASA, MRICS, a New York state-certified real estate appraiser. “I look for comparable sales that, ideally, have happened in the last year within a 10-block radius to come up with a value.”

Loyer adds that appraisers also look at square footage, renovations, lot size, conditions, location-specific factors, market trends, and neighborhood characteristics.

Why Did My House Appraise Higher Than I Thought?

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If your house appraised higher than you thought, Loyer notes that this could have happened for a few reasons, such as other homes similar to yours in the area that were recently sold at a higher price and/or strong market conditions. If you’ve made improvements to your home, those can also impact the value that an appraiser sees in your property (or in this case, your home).

What happens if my house is appraised higher than the bid?

If your house was appraised higher than the bid, you’re in luck (usually). “This benefits the buyer, as they may gain instant equity,” says Loyer. “However, it typically doesn’t change loan amounts since lenders use the purchase price or appraised value, whichever is lower.”

Why Did My House Appraise Lower Than I Thought?

If your house appraised lower than you thought, Kusayeva notes that the market could have something to do with it. For example, “You may have the best house on the block, but the surrounding houses are not as great and sell for much less,” says Kusayeva. “Those factors will affect the value of your house.”

Loyer adds that your home may not be in the best possible condition and could have experienced upgrades that are less valuable than you initially thought.

What happens if my house is appraised lower than the bid?

If your house was appraised lower than the bid (and you are financing your new home via a mortgage loan), Loyer says that it’s important to note that the lender will use the appraisal value (and not the purchase price) to set the loan amount. As a result, you may have to pay some out-of-pocket and/or potentially undergo a renegotiation process. If you do go back to the appraiser concerned that the initial appraisal is incorrect, you should have the necessary data to back up your claims, says Gold.

“Typically, attorneys in real estate transactions include contingency clauses that allow buyers to walk away from the purchase in the event the appraisal comes in lower than the contract price,” adds Kusayeva.

How Long Does a House Appraisal Last?

In general, a house appraisal can last anywhere from 30 to 60 days on the low end and 90 to 120 days on the high end. Loyer notes that the period during which a house appraisal is valid frequently depends on the lender and market activity. “If there are market changes in the marketplace, then an appraisal may not last for more than 30 days,” says Gold.

How Much Do House Appraisals Cost?

How much house appraisals cost is based on various factors, including the appraiser you use and their experience, as well as the size (and type) of the house you want to get appraised, the level of involvement required to properly appraise it, and its location. Having said that, Loyer notes that you can generally expect a house appraisal to cost between $500 and $800.

FAQ

Who pays for a house appraisal?

Who pays for a house appraisal is situation-dependent. However, “In lender transactions, the buyer commonly pays for the appraisal, although it is ordered by the lender (which is the bank in many cases, especially if you’re getting a mortgage),” says Loyer. “For other purposes, the party seeking the appraisal pays directly.”

Is an appraisal required to buy a house?

Whether or not an appraisal is required to buy a house will depend on how you finance your new home. “If using a mortgage, lenders require an appraisal,” says Loyer. According to the Federal Deposit Insurance Corporation (FDIC), “A lender uses an appraisal not only to assess the value of the property, but also to determine such things as your interest rate, required down payment, and whether you will be approved for the loan.” If you’re paying for a house in cash, Loyer notes that you do not need to have an appraisal done, but notes that it can provide you with peace of mind regarding its value.

About the Experts

• Julia Kusayeva is a New York state-certified general real estate appraiser and president at AAA Appraisal & Consulting, Inc. She has appraised thousands of properties including co-ops, condos, single and multi-family houses, apartment buildings, commercial properties and vacant land.
• Scott M. Loyer, SRA, is a licensed residential real estate appraiser and chief appraiser at Connect Appraisal. With more than 20 years of appraisal experience and an SRA designation (Senior Residential Appraiser), he has a plethora of experience appraising properties throughout the United States.
• Ronald M. Gold, ASA, MRICS, is a New York state-certified real estate appraiser with more than 30 years of appraisal experience. He previously served as president of the New York City chapter of the American Society of Appraisers.

Sources

• Fdic.gov: “Understanding Appraisals and Why They Matter“