by Kate Franke
omeowners are experiencing substantial increases in the values of their homes. According to CoreLogic, in the third quarter of 2020, the average homeowner gained approximately $17,000 in equity since the third quarter in 2019. There is high demand in the housing market due to a low supply of houses. Record low interest rates have encouraged homeowners to refinance their mortgages or take out home equity loans to make improvements.
Whether looking to buy, sell or refinance a home or take out a home equity loan, a consumer should expect these transactions to include a home appraisal. Here are 10 things to know about a home appraisal:
- The definition of a home appraisal.
A home appraisal is an estimate of a home value done by a licensed or certified appraiser. Factors that go into a home appraisal include the current condition of the property, comparable sales of similar properties in the area and the location of the property.
- The average cost of a home appraisal.
According to HomeAdvisor.com, the average cost of a home appraisal in 2020 was $300-$400. However, the cost is typically higher in metropolitan areas and remote areas. The appraiser has to put in more time and effort to reach the property and find comparable sales.
- A pre-listing appraisal can help you figure out a sales price.
No one wants to leave money on the table when selling a home. With home values rapidly changing, a pre-listing appraisal will help a homeowner figure out the best price to list a house. This is especially helpful if the homeowner is trying to sell the home without a realtor.
- A home appraisal is different from a home inspection.
A home appraisal is only looking at determining the fair market value of the home. Even though a home appraiser will look at many of the same items as a home inspector, an inspector does not determine the home’s value. A home inspector is looking at the property’s condition to determine if any defects or repairs need to be addressed prior to closing.
- The homeowner typically does not get to choose the appraiser.
Unless the homeowner is doing a pre-listing appraisal, the lender usually chooses the home appraiser. This is because the vast majority of home sales involve a mortgage, and the lender wants to make sure that the property is worth the amount of money it is loaning out to the buyer.
- Preparing for a home appraisal is important.
An appraiser doesn’t care about a few dirty dishes in the sink, but a leaky faucet, broken window, cracked ceilings and soiled carpets will affect the appraisal value. Be ready to provide the appraiser with a list of improvements done to the property, as well as any information regarding the property size (e.g., a land survey) and any other offers received on the property.
- Some home improvements will not help an appraisal value.
Losing a bedroom to expand the closet or bathroom in the owner’s suite may actually lower a home’s value. Getting an appraisal before making significant home improvements may help determine if the improvement will hurt the home’s value.
- If the appraisal is low, ask for a reconsideration.
A reconsideration is requested by the seller. The lender will want documented proof of why a value should be increased—for example, providing documentation of other sales in the area with similar square footage, condition and a higher valuation.
- A home appraisal can lead to price renegotiations.
If the appraisal comes back lower than the negotiated price, the buyers usually have a clause in the contract that will let them out of the purchase. When this happens, the seller will agree to drop the home’s price to the appraisal amount.
- A lender may waive the home appraisal.
This is most commonly done with a home refinance. The lender agrees to waive the appraisal because the amount being borrowed is less than the home’s value. These waivers are more common now that lenders have more sophisticated appraisal technology available to them.