Everything You Need to Know About Home Appraisals

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 they are paying and validate the mortgage for a lender.²

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.² But, depending on the real estate market at the time, it could be something you negotiate with the seller.³

Home appraisal costs may vary from state to state, but expect to pay in the $300-$400 range.³ 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 should conduct home appraisals. All home appraisers must take 75 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.⁴ The Federal Deposit Insurance Corporation (FDIC) sets out rules and regulations that include several restrictions to ensure that appraisers are independent and objective.⁵

In most cases, the lender requires a home appraisal as part of the mortgage approval process.¹ 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.³

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 one to 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 one to two weeks.³ 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.³

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.^2,3