When you’re searching for a home or selling one, you likely have many questions about what homes in the area are valued at, how this is determined, and how this affects you as you embark on your home-buying or selling journey. We’re breaking down the basics so that you have a better idea of how the appraisal process works and what it means for you as a participant in the market.
What Is a Home Appraisal?
Let’s start by answering the most important question: what exactly is a home appraisal? A home appraisal is carried out by a professional property appraiser—someone whose job it is to determine the fair market value of a property. Appraisers hold certifications, education, and experience that make them qualified to make their determinations, eliminating personal preferences or subjective considerations from the process.
They’ll arrive at their determination through a variety of steps, including a visit to the home, research conducted on the neighborhood’s recent similar sales, and an evaluation of the home’s properties that would affect its value on the market (i.e. desirable features like a large level lawn or original historic details).
An appraisal is ordered by the lender and typically occurs once an offer has been submitted to the seller and the seller accepts. Appraisals can reassure buyers that the price they have agreed upon with the seller is in line with what an objective third party would also determine.
What Influences a Home Appraisal Value?
In the same way that buyers will value various features over others as they conduct their home search, appraisers will consider the details of a property and how they might affect the value. Many factors go into their final number, like the home’s location, square footage, condition, age, amenities, and upgrades.
For sellers, this is when repairs and upgrades you’ve made will pay off, leading to a higher value and higher sales price. Although there will be elements that a seller cannot control, like location and size, making moves to upgrade other areas, like the floors, windows, appliances, and more, can go a long way.
What Is the Timeline?
Considering appraisals happen when each party is ready to wrap the sale up and celebrate, most people hope for a quick appraisal. However, they can take anywhere from a few days to a few weeks, so plan accordingly for potential delays.
The lender will reach out to the appraiser to schedule a time for them to visit the property and gather information. The timing of this will depend on the appraiser's availability but typically will occur within a few days to a week or two. A perk of selling or buying during parts of the year when the market is slower, like winter months, is that an appraiser’s schedule is more likely to be free, leading to fewer delays. The appraiser will arrive at the property on the agreed-upon date and usually take an hour or two to complete their examination.
Before completing their report, they’ll also conduct further research into the neighborhood and comparative sales. Once they’ve determined the home’s value, they’ll submit their report to the lender. Keep in mind that the buyer is usually the one who pays the appraiser’s fee.
What Are Appraisal Contingencies?
So, what happens if the appraisal report gives a value that is below the buyer’s offer? If an appraisal contingency is in place, which is a clause in the contract that grants buyers the opportunity to rescind their offer if the appraisal value is less than their offer, a buyer can choose to not proceed with the purchase without financial consequences (like the loss of their earnest money deposit). The seller can also choose to renegotiate the price.
However, not all buyers choose to put this contingency in place, particularly not in very competitive seller’s markets where they feel they have less negotiation power. Although it's not ideal for anyone, there are options for both parties should an appraisal value come as a surprise, and it does not necessarily mean the transaction cannot close.
Ultimately, although it's not required, the appraisal process is an important and recommended step toward the end of a home purchase or sale. If you’d like to discuss your selling or homeownership goals or have further questions about appraisals, please reach out. We have the expertise and strategy to handle all of your real estate needs.