You’re so close to wrapping up the largest purchase in your life and you’re eager to finally sign the papers and get the keys to your new home. But before that can happen, the mortgage lender must see if the property is actually worth the asking price. After all, a lender isn’t going to give someone tens of thousands of dollars over the true home’s true value.
A home appraisal is an essential part of the process that every financed transaction must go through. If this is going to be your first purchase, it can sound like it’s a make-or-break. In a way, it is because you’ll either have to come up with the difference between what the lender will approve and the listing price or let the deal fall through.
Don’t expect the worst because when you know how a home appraisal works, the wait won’t be so stressful.
What is a home appraisal?
A home appraisal is an unbiased valuation of a property. The lender hires a third-party assessor to come out and check out the property. They’re looking at various aspects of the property, and the neighborhood, and analyzing market data to determine the property’s value.
How are home appraisals different than a home inspection?
For first-time buyers, it’s easy to understand how a home appraisal and a home inspection can get mixed up. They both involve someone other than real estate agents and yourself looking at the property. However, they serve two different functions.
A home inspector requires a licensed home inspector to go to the property and get very detailed in their findings during an inspection. They look at everything and document any problem areas, no matter how small they may be.
A home appraiser, however, doesn’t get as detailed. Sure, they’ll look at the structure, the property itself, and the condition of the home… But they don’t nitpick at every little detail. They’re also using external factors like the crime rates in the neighborhood, the location and things (busy intersection, proximity to public transport, etc.) surrounding the property, and comparables.
How does a home appraisal work?
When the appraiser comes to the property, they are going to be looking at various factors that will directly impact the property value. These features include:
- Lot size, livable square footage, number of bedrooms and bathrooms
- Health and/or safety risks
- Overall appearance of the exterior of the home (curb appeal included)
- Upgrades like decks, garages, pools, and basements
- General condition of the property and house
- Whether the house sticks out compared to the rest of the neighborhood (resale purpose)
- How the property compares to similar homes that sold recently
The appraisal process is relatively quick, as it usually only takes about a half-hour for the average property. It will take longer for bigger properties, to how busy the local appraisers are, the time of year, and so on.
Despite where you are in your house hunt, just know that the goal of a home appraisal isn’t to price you out of a home… It’s to protect you (and the lender, of course) from buying something that is severely overpriced. It’s all part of the process!