Real estate appraisers check out a home’s value – what’s inside and outside and how it all compares to similar homes sold in a neighborhood. Whether you are refinancing a mortgage or buying a home, it will be necessary to get an appraisal of the property.
“It is a mandate to get an appraisal. But when it’s on the purchase side rather than a refinance, it is more of a negotiation-based thing on the buyer and seller when they come to terms on the comparables in the area,” says John Major, loan officer at Pulaski Bank Home Lending in Omaha, Neb. “When it comes to a refinance, people are wanting a certain value. They obviously have pride in their home. And sometimes, they are doing the refinance to get cash out to do more home improvements like a basement or kitchen.”
Some people refinance to combine first and second mortgages for lower monthly payments. Others want to pay off credit card debts or student loans. But sometimes, those appraisals don’t come in the way people think they should.
If the appraised value comes in less than the loan that a lender is about to hand you, then something will have to happen. They can’t approve you for a loan on a property unless it appraises for the full agreed-upon price of the house, Major says.
How much does an appraisal cost?
The buyer of a home or the owner of the home who is refinancing the loan will be the ones paying for the appraisal, usually. According to a survey by HomeAdvisor.com, Americans paid on average $310 for an appraisal this year. However, prices can be much higher in some areas or for larger or more complex homes.
Some appraisals cost upwards of $1,000. But those are rare cases such as for waterfront homes or properties valued above a million dollars.
Your right to see the appraisal
In January 2014, the Consumer Financial Protection Bureau put a new rule into effect. Your lender is supposed to give you a free copy of your appraisal as soon as the mortgage company receives it, or at least three days before your closing. You can waive that right, but why? You might as well look at it and see the data. You paid for it.
An appraisal is based on information that’s similar to the information real estate agents use for a comparative market analysis, including the specifics of your house such as square feet, number of bedrooms, number of bathrooms, the location and age of the property and interior improvements. These facts about your home will be compared to other homes that the appraiser considers comparable to come up with your home value.
What if the appraisal comes in low?
According to the National Association of REALTORS® (NAR), if the appraisal comes in low, you should review the report with your lender or real estate agent to see which homes it was compared to. Make sure the appraisal includes correct information with all the tangible items like a new roof or high-end appliances. It should also include those amazing, intangible things that made it attractive to you such as a lake view or a block from the best-rated elementary school in the district.
If can still buy the home at the agreed price by find the extra money somewhere else to make up the gap between the appraisal and the agreed-upon price with the seller. You can also:
- Challenge the appraisal with precise documentation you gather with the help from your real estate agent. “It can be difficult to challenge,” Major says. “They need to have sufficient evidence of comparables that they didn’t take into consideration. You have to have notable facts to make clear that the value is not clear. The odds of having it changed are usually not in your favor, unfortunately.”
- Get a second appraisal.
- Go back to the sellers and renegotiate the price and contract.
- If it is a refinance, you can lower the amount you need for cash-out, and refinance at the lower appraisal rate, Major says.
What are appraisers looking at?
Everything, Major says.
“They look at square footage, how many bedrooms and bathrooms, what type of kitchen is there, the style of home, the condition of the home and so much more,” he explains.
But he admits that it is tough to put a price on some homes because there aren’t any houses just like it in the near vicinity.
“Some neighborhoods just have all different types of homes. In others, the same builder built them all and they have a lot in common,” he says.
What can you do before the appraisal to make your home worth more?
Before an appraiser arrives, you should spruce up your home just like you might do to actually sell it. Curb appeal is important, and so is having a clean home inside, Major says. Do it all from raking leaves to making the beds to decluttering the counters.
“Just like buyers, they want to see things tidy,” he says.
You never know if having bright flowers planted by the front door and scrubbing your tiled floors will get you more on your appraisal. But it can’t hurt. You can also make a list of all the repairs and upgrades you have made on the house recently. A new furnace six months ago and new bathroom cabinets and countertops two years ago could help put some more value into your appraisal.