Anyone who has purchased a home knows that there are multiple steps that are involved with the financing of your new home. One of the more confusing steps is that of the home mortgage appraisal process—is the home appraisal the value that you and the seller agreed on? Is it the tax assessment valued for what the home last sold for? Here are the answers that will help you to navigate the appraisal process of purchasing and financing your home.

What is a home appraisal?

First off, what is a home appraisal? A home appraisal is an unbiased report of what the value of the home is in a fair market. The appraisal is performed by a trained professional, and used to ensure that the homebuyer, home seller, and mortgage lender receive an accurate and true value assessment of the property. In most residential real estate transactions, you are able to select your real estate agent, your financing lender, but you are not eligible to select the appraiser. The appraiser is generally selected by the lender, to provide a level of independence from the buyer and the seller. In order to ensure that the appraisal is unbiased, and fair, the lending company’s loan production staff is prohibited from having any direct contact or influence upon any appraisers.

What determines a home’s value?

When determining the value of a home, there are several steps that the appraiser will take. These steps include making a personal visit to the property, and reviewing recently-completed sales of comparable homes in the area. This information that is gathered by the appraiser will be provided to the homebuyer in a final report of value to see how the final value was determined.

Viewing the Property

Depending on the size of the home, the appraiser can expect to spend over an hour viewing and inspecting the home. During this time, the appraiser will measure the home’s square footage, verify the number of bedrooms and bathrooms, and compare the findings with the housing data provided by your local county records.

During the viewing, the appraiser will also inspect the home for water, termite or mold damage. Check the status of the furnace and plumbing, and take note of any major systems or structures of the home that need replacement. Any improvements that have been made to the home will be taken into consideration; some improvements and upgrades do not have universal value.

Comparable Properties

After viewing and assessing the property, the appraiser will then look at comparable properties in the area. Comparable are similar properties that have recently sold, these properties are either in the same general area as the home, or can even be specific to the neighborhood or subdivision. Appraisers will look for homes that are comparable in size, characteristics, age, land, and architectural style. As a general rule, comparable properties are homes that were listed and sold within the last three to six months.

Final Report of Value

The final step of a home appraisal is the preparation of the final report of value. This document will provide information to you and your lender with a complete analysis of the property, and an outline of how the appraiser came to calculate the final value of the home. In the final report you can typically expect to find the following information:
– Size and condition of the home
– Permanent fixtures, such as lights, ceiling fans, plumbing (including faucets)
– Details about any home improvements or renovations, including updated kitchens, bathrooms, or new roofing or flooring
– Comments about the surrounding area, including both positive and negative local features
– A detailed current market analysis, including information on comparable properties
– Comments about any serious structural problems discovered, including cracked foundations, wet basements, window replacements, and roofing repairs

Improving Home Appraisal Process

As a buyer, be sure to carefully review the final report of value that you receive from the appraiser. If there are any parts of the report that you don’t agree with, or that are different from what your home inspection report found, be sure to speak up and let it be known.

If the appraiser assigns a value to the home that is significantly different from the agreed-upon selling price between the buyer and seller, the mortgage lender may elect not to fund the loan. Buyers can either bring additional cash to close to make up the difference, or the buyer and seller can renegotiate the sale price.

As the seller, be prepared for the appraisal by having an itemized list of any recent improvements that have been made to the home. Be sure to complete any planned, or started DIY projects prior to the appraiser showing up. Be sure to highlight any upgrades and positive features of your home to the appraiser.

When purchasing a home, going through the appraisal process might just seem like another step for buyers and sellers to navigate through. But having a home mortgage appraisal done provides valuable information that ensures you can confidently make one of the biggest financial decisions of your life.