Understanding How a Home Appraisal Works


What is a home appraisal?

A home appraisal is the process undertaken by a licensed appraiser to determine the value of a home and the land it sits on.  Appraisals can take several forms, and appraisers may use several methods, but all appraisals generally look at the square footage, the condition of the home, and any special or distinguishing characteristics.  They also take into consideration the neighborhood, the conditions of the local real estate market, and any recent transactions of similar residences.  Though there are various types of home appraisals, including “drive-bys” and “floor plan” appraisals, the most common appraisal is the Uniform Residential Appraisal Report (URAR), a 6-page, uniform report used by many mortgage lenders.

Who needs a home appraisal?

Anyone who is applying for a mortgage will most likely need to have a home appraisal done.  Most banks require an appraisal before giving a mortgage, and oftentimes have a list of approved appraisers to choose from.  Appraisers receive their license from the individual state after completing a certification program.  Sometimes, the borrower is allowed to select their own, independent appraiser though the results may be subject to review by the bank.  The cost of the appraisal is covered by the borrower, and is usually included in the mortgage cost.

Potential home buyers can plan on typically paying around $350 for an appraisal, though that cost may fluctuate with the cost of the home, the State in which the sale is taking place, and the availability of appraisers in the area.  It is also important to remember that if one of the parties disagrees with the value determined by the appraiser, a second appraisal may be done.  You can also file a complaint on the appraiser in question with the state’s licensing agency.

Why do banks require a home appraisal?

Home appraisals are important because every home is different, and even similar residences can have very different values if they are located in different areas.  Given the infrequent nature of home transactions, all the parties involved want to know the proper value of the home in question.  Appraisals are required by banks because the individual bank wants to be sure that the home is not worth less than the loan it is being requested to give.

This is important because if a bank gives a loan for a home that is valued less than the loan, the bank cannot be sure that its investment is protected.  At the very least, if an owner is forced to sell the home, the bank knows that the party will be able to cover the loan it received.  This is simply smart business, but it can also complicate negotiations and even result in cancelled contracts if the buyer cannot secure financing.

If you are in the market to buy a home, be sure to do your homework before selecting an appraiser so you are sure to get a good deal and an appraisal report that is acceptable to the mortgage institution.

Moving? Know the value of your home …