What Is a Home Appraisal?

What Is a Home Appraisal?

A home appraisal is a professional assessment of a property's fair market value. It's conducted by a licensed appraiser who typically completes an in-person inspection. They'll also review recent sales of comparable nearby homes (also known as real estate comps). The appraiser will use this information to estimate the home's actual value.

Home Appraisals vs. Home Inspections

• Home appraisal: The goal of a home appraisal is to determine a property's value based on a walk-through and real estate comps. Unlike a home inspection, an appraisal does not involve an in-depth review of the home's major systems.
• Home inspection: An inspection involves a detailed analysis of the home's condition. It's typically ordered by the homebuyer and conducted by a licensed home inspector. They'll visually examine the property and also check how well things are functioning—such as the HVAC system, electricity and plumbing. Afterwards, they'll provide a report outlining any suggested repairs.

Learn more: Should You Get Your Home Appraised?

How Does a Home Appraisal Work?

A home appraisal determines a home's market value through an in-person inspection and analysis of the property. Below is what typically happens if a lender decides that a home appraisal is in order:

1. The lender orders an appraisal. The lender usually chooses the appraiser, but the cost is covered by the buyer (or homeowner if they're refinancing or taking out a home equity loan or line of credit). This expense is typically included in the closing costs.
2. The appraiser conducts an inspection. You can expect the appraiser to walk through the property, noting the square footage and number of rooms and amenities, as well as any visible issues that could affect the home's value.
3. The appraiser researches real estate comps. They'll use this data to see how the home's value compares to similar properties that have recently sold in the area. They should zero in on homes that are comparable in size, condition and features.
4. The appraiser assigns a fair market value to the home. From there, they should provide their findings in a detailed report.

What Does a Home Appraiser Look For?

When appraising a home, an appraiser will likely focus on the following details:

• The home's general condition: This includes whether any obvious repairs need to be made, which may be the case if there are issues with the roof or foundation. The appraiser will also look at the condition of the home's appliances, electrical systems and plumbing.
• The home's location, age and square footage: These details can majorly affect a home's value. A new four-bedroom home in the suburbs will have a different value than a 20-year-old studio apartment in a major city. The appraiser will also consider the number and size of the bedrooms.
• Home amenities: If a home has amenities like a swimming pool or basement, that could increase its value.

Learn more: Appraisal vs. Assessment: What's the Difference?

When Do You Need a Home Appraisal?

Every lender is different, but you'll likely need a home appraisal in the following situations:

• You're buying a new home. An appraisal is an important part of the homebuying process. If a home appraisal comes in lower than the purchase price, the lender won't approve the full mortgage. They do this to protect against potential losses. If you default on your home loan and the lender has to foreclose on the property, they want to be able to recoup their investment.
• You're refinancing your mortgage. Your lender may require a home appraisal before approving you for a refinance loan. But you might qualify for no-appraisal refinancing if you have a government-backed mortgage. This could shorten the refinance process, but there are some potential downsides. For example, you might secure a lower mortgage rate if an appraisal finds that your home value has increased.
• You're borrowing against your home equity. If you're applying for a home equity loan or line of credit, your lender will likely order a home appraisal. That's because your property value is an important factor when calculating your home equity—and you'll need sufficient equity to qualify.
• You're trying to eliminate your mortgage insurance. If you have private mortgage insurance (PMI), you should be able to drop it once your loan-to-value ratio is below 80%. You might reach that threshold if an appraisal finds that your home value has increased.

Learn more: Can You Refinance a Mortgage Without an Appraisal?

How Much Does a Home Appraisal Cost?

The average cost of a home appraisal for a single-family home is $358, according to HomeAdvisor, but it could be more or less depending on the property and location. The typical cost range is $314 to $423. For multifamily homes, the range jumps from $600 to $1,500. Generally, buyers pay for the home appraisal since it's a part of the mortgage process.

How to Prepare for a Home Appraisal

If you're a homeowner with an upcoming appraisal on the calendar, you'll want to prepare your home ahead of time. Taking the following steps could make for a smoother experience:

1. Clean and declutter. You don't have to hire a professional cleaning service, but tidying up can make it easier for the appraiser to complete their walk-through.
2. Complete any obvious repairs. That might include fixing a cracked window or repairing a broken gutter. Put yourself in the appraiser's shoes and anticipate what issues they may come across.
3. Enhance your curb appeal. Simple things like pressure washing the driveway, repainting the front door or refreshing your landscaping can all help spruce up your home—and increase your property value.

Learn more: How to Dispute an Appraisal

Frequently Asked Questions

The Bottom Line

Getting a home appraisal is part of the homebuying process. It may also come into play if you're refinancing your mortgage, taking out a home equity loan or line of credit, or looking to drop your private mortgage insurance. If you have any plans to take out a new home loan or second mortgage, your credit score will be another important factor that lenders consider. With Experian, you can check your FICO^® Score^Θ and credit report for free to see where you stand.