Homebuyers

What Is a Home Appraisal? What Appraisers Look for and Why It Matters

Buying a home involves more than finding the right property and qualifying for a mortgage. Before most lenders approve a home loan, they want to know one important thing: Is the home worth the price being paid?

That’s where a home appraisal comes in.

A home appraisal is a professional opinion of a home’s market value prepared by a licensed or certified appraiser. Most lenders require one when you’re buying a home or refinancing a mortgage to help ensure the loan amount reflects the home’s value.

A beautiful home doesn’t automatically receive a high appraisal.

“A home may be stunning, with a brand-new kitchen, and make a great first impression, but that doesn’t mean it will be appraised at a high value,” said Marilyn Comiskey, a San Diego real estate agent at Compass. “An appraiser sees past the obvious and considers the marketplace’s opinion of the property’s value.”

Here’s what homebuyers and homeowners should know.

Why do lenders require a home appraisal?

A home serves as collateral for a mortgage.

An appraisal helps the lender confirm that the home’s market value supports the amount being borrowed. It also helps homebuyers avoid paying significantly more than a home’s market value and gives homeowners refinancing a mortgage an updated estimate of how much equity they have built.

What do home appraisers look at?

Appraisers evaluate many aspects of a property before determining its value.

“In my experience, the three most important factors are comparable sales, the condition of the home, and what is going on in the market,” said Comiskey.

Comparable sales

Comparable sales, often called “comps,” are one of the most important parts of a home appraisal.

Appraisers generally compare the home with three to five recently sold properties that closely resemble the subject property in size, age, condition, location, and features. Those sales help establish what buyers have recently been willing to pay for similar homes.

“Generally speaking, one should compare similarly sized and renovated homes in the building and in the immediate area,” said Abigail Godfrey, a real estate agent at New York City’s Coldwell Banker Warburg.

The home’s condition

Appraisers also evaluate a home’s overall condition, including its roof, foundation, siding, windows, heating and cooling systems, plumbing, electrical systems, kitchen, bathrooms, flooring, and signs of deferred maintenance.

A well-maintained home with updated systems and quality renovations may receive a higher valuation than a similar property that needs significant repairs.

Size, layout, and improvements

Square footage, the number of bedrooms and bathrooms, the floor plan, lot size, garage, finished basement, and other living space all factor into an appraisal.

Recent improvements may also increase value, particularly kitchen and bathroom remodels, a new roof, replacement windows, updated heating and cooling systems, finished basements, room additions, and energy-efficient upgrades.

Providing the appraiser with a list of recent improvements and permits, if available, can help ensure those investments are considered.

Appraisers also consider the neighborhood, school district, nearby parks, shopping, transportation, flood zones, and nearby commercial or industrial properties.

What doesn’t usually affect an appraisal?

Many homeowners spend time staging their home before an appraisal, but decor isn’t what determines value.

“I advise sellers not to spend too much time decorating for the appraiser,” said Comiskey. “The home should be clean, accessible, and well maintained, but beautiful pillows or fresh flowers don’t make it valuable.”

Instead, she recommends fixing obvious maintenance issues and providing information about meaningful improvements, such as a new roof, updated mechanical systems, or major renovations.

What can lower a home’s appraised value?

Several factors can reduce a home’s value, including:

• Deferred maintenance
• Roof or foundation problems
• Water damage or mold
• Outdated kitchens or bathrooms
• Damaged flooring
• Unpermitted additions
• Nearby nuisances, such as heavy traffic or industrial uses

What can increase a home’s appraised value?

Features that may increase value include:

• Updated kitchens and bathrooms
• New roof
• Modern heating and cooling systems
• Energy-efficient improvements
• Finished basement
• Additional bathroom
• Larger or more usable lot
• Attractive landscaping

How long does a home appraisal take?

The on-site portion of a home appraisal typically takes between 30 minutes and one hour for a standard single-family home, although larger or more complex properties can take longer.

The written appraisal report is usually completed within several business days.

How much does a home appraisal cost?

Most residential appraisals cost between $300 and $600, although larger, luxury, multi-unit, or rural properties can cost more.

For a home purchase, buyers typically pay the appraisal fee as part of their mortgage closing costs.

What happens if an appraisal comes in low?

A low appraisal doesn’t necessarily mean the transaction is over.

Depending on the circumstances, the buyer and seller may renegotiate the purchase price, the buyer may increase the down payment to cover the difference, or the parties may ask the lender to review the appraisal if they believe factual errors affected the value.

If the purchase contract includes an appraisal contingency, the buyer may also have the option to cancel the contract without losing earnest money.

Home appraisal vs. home inspection

Although they’re often confused, a home appraisal and a home inspection serve two very different purposes.

“An appraisal is not the same as a home inspection,” said Comiskey. “The inspector closely examines the state of the property and identifies potential issues. The appraiser’s primary role is to provide an opinion of value based on the market.”

At the end of the day, the market, not emotion, determines a home’s value.