Whether you’re buying or selling a home, navigating a divorce, or handling estate planning, understanding the home appraisal process is crucial. Appraisals are the foundation for determining a property’s fair market value, ensuring that all parties involved in a transaction or legal matter have an accurate understanding of the property’s worth.
What Is a Home Appraisal?
A home appraisal is an unbiased professional opinion of a property’s value. It’s conducted by a licensed or certified appraiser who evaluates the home’s physical condition, location, and market trends. Appraisers do not represent the buyer or seller. They are an independent third party.
Do I Need an Appraisal?
If you are financing your home purchase with a mortgage, your lender will typically require an appraisal. This helps establish the loan-to-value (LTV) ratio — the percentage of the home’s purchase price that will be financed through the loan. Lenders generally prefer LTV ratios of 80% or lower, as higher ratios pose greater financial risk.
If you’re paying cash for the home, an appraisal isn’t mandatory, but it can still be a valuable step to provide an unbiased perspective to make sure the home’s value aligns with the agreed-upon price. In divorce and estate planning cases, appraisals provide clarity and fairness when dividing assets.
What Does an Appraiser Consider?
Appraisers use various approaches to determine a home’s value, often referencing databases, such as Multiple Listing Services (MLS), which compile listings and recent sales in the area. By analyzing comparable, recently sold homes with similar characteristics, they establish a reasonable market value. Appraisers also look at the home’s condition, location, size, amenities, and recent renovations. No matter the approach, appraisals must remain independent, unbiased, and supported by clear evidence.
How Does the Appraisal Process Work?
Here is a breakdown of what you can expect during the appraisal process.
- Appraisal Request: For buyers and sellers, the appraisal process begins when the lender orders the appraisal. For divorce or estate planning situations, the process is typically initiated by an attorney or mediator to determine the value of a property for distribution.
- Scheduling the Visit: The appraiser will schedule a visit to the property. During this visit, they’ll inspect both the interior and exterior of the home, looking for factors that can affect its value, such as square footage, number of rooms, and condition.
- Comparable Sales: The appraiser will analyze recent sales of similar homes in the area, known as “comps,” to help determine the home’s value. This is a key step in establishing a fair market value based on real-world data.
- Appraisal Report: After the inspection and analysis, the appraiser compiles a report outlining their findings, including the home’s estimated value. This report is then submitted to the lender or the attorney in the case of divorce or estate planning.
What if the Appraised Value Differs from the Purchase Price?
If the appraised value is lower than the purchase price, it can affect how much your lender will finance. To protect against this, you can include an appraisal contingency in your purchase agreement, requiring the deal to align with the appraised value to proceed. You are entitled to a free copy of the appraisal, but this doesn’t apply if an appraisal waiver is granted. If you find errors or believe key details were overlooked, you can request a Reconsideration of Value through your lender.
An accurate appraisal is essential for making informed decisions. If you’re buying, selling or involved in legal matters related to a property, working with a trusted appraisal company is the best way to ensure a smooth and fair process. If you have questions about the process, contact us.