Home Appraisal 101

In this article:

Having a home appraised is a key part of the purchase process, and is a requirement for most people borrowing for their home.

Home appraisal and home inspection sound similar but are not the same thing. Home inspections focus on the condition of a home, assessing the major systems for safety and needed repairs. Home appraisals focus on the overall property value. This includes the condition of the home, like with an inspection, but an appraisal also considers factors like location, proximity to schools and amenities, and more. 

Home appraisals are typically a condition of your home loan, while a home inspection is optional (although highly recommended). Appraisals are a way for the lender to verify the value of your home, which you’ll use as collateral for your loan. If an appraisal comes in lower than the listed purchase price of a home, buyers will have to negotiate an appraisal gap.

What is a home appraisal?

A home appraisal takes into account everything that will impact the market value of your home. This includes superficial things, like if you have a bright and tidy flower garden, as well as more fundamental things, like if your wiring is up to code. 

The good news is there are several things you can do to improve your home appraisal on your own. While a home inspector won’t note things like out-of-date paint color (unless the paint is peeling or in otherwise poor condition), a home appraiser will because an updated interior design adds value to a home. If you want to up the value of your home on an appraisal, take a couple of weekends to make easy upgrades to your home, like putting on a fresh coat of paint, upgrading old light fixtures, or installing new kitchen hardware. 

An appraiser will come in, do their inspection alone, and then present their home appraisal report to both the buyer and their lender. It’s a good idea to stay current on your home’s value by having an appraisal done every three to five years, even if you’re not actively planning on selling. A home appraisal is typically good for 90 days after the report is presented.

What does a home appraisal cost?

The average home appraisal cost is $313 and $421, with most single-family homes falling within that range. A few factors can influence that number. If your home or property is much larger, your appraisal will take longer and present more ground and elements for the appraiser to cover. Your appraisal will cost more if there are outbuildings, a guest house, or other buildings on your property. 

Despite home appraisals being required by the lender, it falls to the homeowner to pay for the appraisal.

Who does the appraisal impact?

The appraised value of your home provides an unbiased and precise value. An accurate value of a house offers equal benefits for buyers, sellers, and lenders: 

Home appraisal and the buyer

From the buyer’s side, make sure you’re not overspending on your potential new home. An accurate appraisal gives you peace of mind that you’re paying the correct amount for the value of your new home. 

If the home you want to purchase is appraised to be worth less than the asking price, you have a couple of options. You can ask the seller to come down on the price to reflect the appraised value, or you can independently come up with the difference between the loan and the selling price.

Home appraisal and the seller

Selling a home is a complicated balancing act, and getting an accurate picture of your home valuation before selling can help you to price your home to get the most value when you sell. 

If your appraisal comes back higher than you were planning to list for, you can make more money on your sale. An appraisal is something that is normally between a buyer and their lender, but you, as the homeowner, can have a real estate appraiser come in at any time. 

Home appraisal and your lender

The home appraisal process is a critical part of the lending process. An accurate picture of your home’s actual value will help ensure a buyer isn’t overborrowing. 

If the asking price of a home is more than its appraised value, chances are that the lender will only approve you for the appraised value. Otherwise, the collateral you have (your home) isn’t worth enough to cover the value of the loan, which puts the bank’s investment at risk. 

What is the home appraisal process?

A potential new homeowner will need to ask a lender for a loan during the buying process. To approve the loan, the lender will require a home appraisal to accurately determine the home’s value.

Unlike a home inspection, where the homeowner is encouraged to be there with the inspector, home appraisals generally happen with just the appraiser in the home. Appraisals are meant to be an unbiased snapshot of the home’s worth, so having interested parties present isn’t ideal. 

An appraiser will spend a few hours or more in the home, using a home appraisal checklist to document the relevant factors. There is some crossover with a home inspection since the condition of the major systems – electrical, HVAC, plumbing, roof, and foundation – are critical to the value of the home. The appraiser will combine these elements with others that aren’t included in a home inspection, like the desirability of the community, amenities nearby, high-end finishing materials, and interior design. 

How to get a home appraisal

If you are borrowing from a bank or credit union for your home purchase, the bank will hire a home appraiser. This is because the appraisal ensures that they lend their money wisely. The bank will coordinate with you and the appraiser.

What is the result of a home appraisal?

For the buyer, the result of a home appraisal is securing their requested loan, or the lender decides the buyer is asking for too much if the appraised value is lower than the amount of the loan. 

If the home’s appraised value is less than the asking price, the buyer can ask the seller to lower the price or come up with the difference on their own.

How long does a home appraisal take?

A home appraisal can take as little as 1 week and as much as 4 weeks, depending on logistics. If you live in a remote or high-demand area, appraisers may need more time. Getting a home appraised during inclement weather or the holidays can also add to the appraisal timeframe. Be sure to stay in close contact with your realtor if the timeline changes.

Real estate appraisal vs. home appraisal

It can be confusing to keep track of all the various appraisals and inspections that come up when you’re figuring out how to sell your home. Below is a quick list that you can reference to keep things simple:

  • Home appraisal – Required by the lender – usually a bank – home appraisals are a mandatory part of securing a home loan. This can apply to purchasing a new home and refinancing your mortgage. 
  • Real estate appraisal – Done by a real estate agent, this type of appraisal is more about creating a strategy to sell your home and doesn’t need to be disclosed to the buyer or lender. 
  • Home inspection – Done by a licensed home inspector, this step is highly recommended but not mandatory. Home inspectors focus on an inspection checklist to make sure the home is safe and secure. This ensures that new homeowners won’t have any surprise major repairs, and it can help sellers close more quickly if they’re done pre-listing. 

What hurts a home appraisal? 

Home appraisers take a wide variety of factors into account, and some have more impact than others on the valuation of your home. Below are important elements that can negatively affect your home appraisal. When considering how to add value to a home before an appraisal, consider the following:  

Poor curb appeal 

Curb appeal is a real estate term for how attractive your home looks to passersby. The curb appeal is what draws your attention to a house. First impressions go a long way in real estate, and potential buyers will immediately form opinions of the overall value of your home based on its curb appeal.

Overly personalized renovations 

Renovating your home to suit your style can be a wonderful way to enjoy your space. However, if you’re planning to sell, keep in mind how those renovations may come across to a broader audience. 

Bright, vibrant colors and niche built-in areas – like a home gym with soft flooring and mirrored walls – are all examples of renovations that might work for you but likely won’t be appreciated upon resale unless you find a buyer with exactly your taste. 

Outdated HVAC system 

As more emphasis is placed on energy efficiency and sustainable living, older HVAC systems that need to be updated can be big detractors of a home’s value. 

In addition, there’s an increasing amount of awareness around airborne allergens and the impact of mold and mildew in the air. Newer HVAC systems are more adept at filtering out irritants, making them more valuable and attractive to prospective buyers. 

Inferior-quality construction materials 

During a home inspection, the inspector will look at the quality of construction, but likely won’t comment on the quality of materials unless it impacts the safety of the home in some way. However, home appraisers will include the quality of building and finishing materials in their report since high-end materials impact the overall value and perception of the home’s value. 

Signs of disrepair 

Things like peeling exterior paint, burnt-out lightbulbs, and dripping taps might be minor things to fix, but they give an overall impression of disrepair and can be indicative of a home that hasn’t been well-maintained in more critical areas. 

Outdated kitchen and bathrooms 

Buyers tend to place a lot of value on modern kitchens and bathrooms. Old lighting and plumbing fixtures and dated, peeling paint can go a long way toward lowering your home’s appraisal value. That being said, if you’re looking for a home to renovate, you might be looking for outdated kitchens and bathrooms so that the home’s market value is lower. 

Signs of pest infestations, like rodents or insects 

Pest infestation is a serious consideration when it comes to home appraisals. Some issues, like mild rodent infestations, can be resolved quickly if there isn’t extensive damage, but more serious pests, like termites, can easily cause your home value to plummet.

If you’re concerned about pest infestations impacting your home appraisal, contact a local pest management company to assess your home before your appraisal. 

How to maximize the appraisal value of your home

Home improvement is a big business in the US, with homeowners spending 457 billion dollars in 2020. Now that you know what could negatively impact your home’s appraised value, here are some key things that you can do to boost value.

Partial or complete kitchen renovation 

Renovating or updating your kitchen is a great way to make a powerful visual impact and increase the value of your home. 

Many full kitchen renovations won’t return their entire cost in resale value, so it may be best to make lighter upgrades for the visual impact rather than remodeling your entire kitchen like you would if you were staying in your home. Many new homeowners will want to renovate the kitchen upon move-in, but you can still boost your sale price by making some less costly upgrades. 

Partial or complete bathroom renovations 

Updating your bathrooms by replacing old fixtures and repainting is a great way to get the big wow factor with relatively little time. Replacing a toilet is a DIY project you can tackle if you don’t want to hire a handyman or plumber, and most bathrooms can be repainted over a weekend. 

The quality of lighting and plumbing fixtures is taken into account in home appraisals, but a happy medium can be found when you’re making upgrades with selling your home in mind. Going with the cheapest plumbing fixtures you can find online is not advised, but there’s also no need to pay a premium for luxury models. 

Home addition 

A home addition is a big undertaking, but adding more functional space – like an additional bedroom – can significantly impact the value of your home. If you own a one-bedroom home, adding a second bedroom opens up your potential market of buyers to small families, giving you a whole new audience when you list your home for sale.  A home addition can also be attractive to refinancing homeowners since you’ll be increasing the overall value of your home with your refinancing loan. 

Another great addition is increasing your kitchen space. Many older homes have very small galley kitchens, and modern home buyers tend to value larger, more open kitchens and eating areas. Adding on to the footprint of your home by expanding your kitchen makes your home more attractive to potential buyers and will increase your home’s appraisal value, as long as it’s well-built and done to code. 

Bathroom addition

Lack of bathrooms is a common complaint among homeowners, especially those with families. Adding a full bathroom to your home dramatically increases the functionality of your space, and a main-floor half bath makes hosting guests much more convenient.

Many older homes were constructed with just one bathroom; adding an ensuite bathroom is another option to make your home more valuable and attractive to buyers. More bathrooms mean an increase in the value of your home, leading to a higher appraisal. 

Energy-efficient windows 

Installing new windows can be expensive. However, with more consideration put on energy efficiency, it can be a great way to dramatically increase your home’s value. In addition to the energy savings, your buyer won’t have to worry about taking on this project themselves, which can be a big draw all on its own. 

Exterior improvements 

Painting the exterior of your home, updating lighting, or landscaping are ways to significantly raise your curb appeal. You want that dramatic factor when an appraiser or buyer sees your home for the first time because first impressions are key when it comes to real estate. 

If you’re a skilled DIY enthusiast, exterior painting a ranch-style home or adding new garden beds to your front yard are great cost-effective projects. If you’re thinking of adding a structural feature like a retaining wall or swapping out exterior lighting, make sure you get the right pros to help so your improvements will pass appraisal and inspection with flying colors. 

Sellers, prospective homeowners, and refinancing homeowners will all have to work with the home appraisal process. It’s important to be informed about what you can do to impact the valuation of your home and what your options are as a buyer when you get an appraisal. Whatever part of the process you’re in, this handy guide to home appraisals can be a useful reference along the way.