7 Min Read | April 1, 2022
Learn what home appraisals are, how much they cost, who does them, why they’re so important to the home-buying process – and what to do if yours comes in low.
This FAQ answers nine of the most frequently asked questions about home appraisals.
Home appraisals assure buyers that the price they’re paying is fair, and assure lenders they won’t lose much (if any) money if the loan defaults.
25% of delayed or canceled home sales are caused by home appraisal issues.
But a low appraisal doesn’t have to be the end of the deal – learn what to do if it happens to you.
If you’ve ever bought, sold, or refinanced a home, you know it involves jumping through a series of hoops. The home appraisal is one of the most important steps in this process. In this FAQ, we’ll explore some of the most commonly asked questions so you can be well prepared.
In its January 2022 Realtors® Confidence Index Survey, the National Association of Realtors reported that home appraisal issues caused 20% of the delays or cancellations in home sales.1 Home appraisal issues often result in something needing to be corrected before the sale could go through.
Considering a home sale, purchase, or refinance? Here’s what you need to know.
A home appraisal is an independent, impartial assessment by a qualified home appraiser of the value of a home in the current housing market. It helps assure a buyer about the price he or she is paying and validate the mortgage for a lender.
The buyer usually pays for the home appraisal, either as part of the closing costs or as a separate expense. That’s because the mortgage lender usually insists on a home appraisal as part of the loan evaluation. But, depending on the real estate market at the time, it could be something you negotiate with the seller.
Home appraisal costs can vary from state to state, but expect to pay in the $300-$400 range. The size and complexity of the property being appraised may affect the cost – my research found outliers above and below that range.
As required by all 50 states, only a fully qualified, licensed, or certified home appraiser can conduct home appraisals. All home appraisers must take 79 hours of standardized national coursework as a home appraiser trainee. Additional coursework that varies by state is needed to become licensed. To become “certified,” a home appraiser needs more coursework plus time in the field. The Federal Deposit Insurance Corporation (FDIC) sets out rules and regulations that include several restrictions to ensure that appraisers are independent and objective.2
In most cases, the lender requires a home appraisal as part of the mortgage approval process. The lender also selects the appraiser, who may be on staff at the lending institution or a third party. The home appraiser then contacts the seller to make an appointment to view the house. There is a standardized process that home appraisers follow, and a big part of that process is analyzing comparable nearby home sale prices. The appraiser puts together a report on the market value of the home and sends it to the lender.
For the seller, it means a visit by the home appraiser, who will tour the inside and spend some time outside the home. That could take anywhere from half an hour to two or three hours, depending upon the size of the home and property. Appraisers need time after the inspection to research and crunch numbers. You can expect them to complete the report in roughly three to five days. But any information usually will come through your lender, which could take a little longer. Your bank may not contact you at all if the purchase and sale agreement price is met or exceeded by the home appraiser’s assessment.
Appraisers evaluate several factors, including location (for example, how close the house is to schools and how good those schools are considered to be), neighborhood, convenient access to shopping, the home’s age and condition, materials, construction quality, number of bedrooms and bathrooms, square footage, floor plan/layout (an open concept design adds value), additions and updates, house style, curb appeal, current market conditions, and recent sales of nearby comparable homes.
Because the property is the collateral for the home loan, mortgage lenders want to ensure that home buyers are not borrowing above the value of the home. An appraisal protects the lender from extending more money than it might be able to recover in the worst-case scenario. As long as the appraisal comes in at or above the agreed-to price, the lender is better protected from loss if the loan defaults. When the home appraisal comes in below the price, the lender is not likely to approve the home loan, or will put downward pressure on the price.
When a home appraisal comes in lower than the agreed-to price, several issues can occur. A few thousand dollars may not raise an eyebrow. But if it’s a substantial difference, the lender could be inclined to not approve the original amount of the mortgage or to suggest that the parties involved agree to a lower price. The first remedy in a situation like this is for the buyer and seller to negotiate new terms.
You can ask the bank to consider a second opinion and have the home reappraised. Perhaps that’s a cost that buyer and seller split. Another approach might be to appeal to your original appraiser.3
The home appraiser’s assessment of nearby comparable property is often believed to be the most important part of the home appraisal. Here are some questions to keep in mind when reviewing that part:
In other words, consider whether you could make a case about the property analysis if you choose to appeal a home appraisal. The property analysis often is based on limited information; only so many nearby houses may have sold recently. Appraisers sometimes have to make do with what they have. If you can show your appraiser new information that supports a higher price, you’ve got a chance of convincing them to agree.
If the purchase and sale agreement does not have language that gives you an out, you could be liable for the difference between the home appraisal amount and the purchase and sale agreement amount. It’s a good idea to read your purchase and sale agreement before signing to make sure that the appropriate language is in place.
A home appraisal is an objective estimate of the value of a home, made by a licensed or certified home appraisal professional. In most cases, appraisals are required by the lender to protect its interest in the event the home forecloses. Most home appraisals sail through without pause, but when you get a low valuation, both buyer and seller may need to work together to preserve the sale.
1 Realtors® Confidence Index Survey January 2022, National Association of Realtors
2 “FDIC Law, Regulations, Related Acts,” Federal Deposit Insurance Corporation
3 “What You Should Know About Home Appraisals,” Investopedia
Scot Finnie is a journalist who covers primarily business and technology. He was editor-in-chief of Computerworld for more than a decade.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
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