Most of the time, when selling your house, you can anticipate that there will be an appraisal. The vast majority of the time, mortgage lenders require the home to be professionally appraised before they sign off on the loan… so unless your buyer is paying in cash, you’re probably going to need to have the place appraised.
The timing can vary, but it’s usually in the period between the acceptance of the buyer’s offer, and the final closing date. In other words, the mortgage appraisal process will probably happen in roughly the same window as the inspection, though these two steps in the real estate transaction are distinct from one another.
As you try to get your home sold, it’s important to be mindful of the pending appraisal and all its implications. In this post, we’ll outline roughly what the appraisal is and what you can expect from it.
As a quick reminder, we’ll also encourage you to claim your free seller’s report from SOLD.com, which will outline some additional guidelines for successfully selling your house. Request your report now!
With that said, let’s dig into the home mortgage appraisal process.
Understanding Home Appraisals
The mortgage appraisal process starts with the borrower or the lender ordering an appraisal of the property being used as collateral for the loan. The lender then hires a licensed, independent appraiser to conduct the appraisal. The appraiser will typically visit the property and perform a visual inspection, taking note of the property’s condition, age, size, and any upgrades or renovations. They may also take into account any external factors such as the location, zoning, and the overall condition of the neighborhood.
Again, an appraisal is not an inspection; the appraiser will not be meticulously inspecting each and every household system or making repair recommendations.
Instead, they’ll spend a few minutes surveying the home, walking through each room, potentially making a few notes, and determining roughly how much the home is worth. The inspector’s goal, basically, is to ensure that the agreed upon sale price is accurate and fair.
Why Appraisals are Done
You can probably imagine why appraisals are done: The bank wants to protect its investment, ensuring that they are not underwriting money for a home that’s frankly not worth it. In a worst-case scenario, the bank wants to recover as much of their investment as they can, and that’s not possible if they sink more money into the home than it could ever be worth.
The bank, or other lender, will use the appraisal report to determine the maximum loan amount for which the borrower may qualify. If the report shows that the property is worth less than the amount the borrower wants to borrow, the lender may require the borrower to come up with additional down payment or to find a different property to purchase.
To put it differently, the appraisal is designed to prevent the homebuyer from overborrowing.
How the Appraisal Process Works
As a seller, you do not have to arrange for, or provide, the appraisal. The bank or lender will arrange it, hiring an appraiser who is licensed in the state. It is legally required that the appraiser be someone totally independent… that is, it can’t be an employee of the bank that’s underwriting the loan! The appraiser must also confirm that he or she has experience appraising homes in the local geographic area.
The appraiser’s inspection will be purely visual, and you don’t need to worry about them doing anything “invasive” to any part of your home. The appraiser’s valuation of the home will be based on recent home sales in the area, as well as on the square footage, the amenities, and the general state of repair in which you’ve kept your house.
The appraiser will generate a thorough report that outlines exactly how they arrive at their final conclusion. The report includes a detailed description of the property, photographs, and a market analysis. In total, the mortgage appraisal process should take less than two weeks from when it is ordered to finalized.
Will an Appraisal Make it Harder for You to Get Your Home Sold?
In an ideal world, the appraisal will simply confirm the sale price of your home.
The worst-case-scenario for buyers is that the house appraises for quite a bit less than what you’re asking for. If this happens, your only real option is to lower your sale price to align with that appraisal. You can hold out for a cash buyer who will pay what you want, and not ask for an appraisal… but that’s a remote possibility.
This underscores the importance of pricing your home fairly and correctly the first time around. Don’t ask for more than the home is truly worth, as it will likely just lead to complications down the line… and also make it that much more difficult for you to find a buyer in the first place.
What Can Impact the Appraised Value of your Home
There are several factors that can affect the value of a property as determined by an appraiser. These include:
Location- The location of the property is one of the most important factors that affect its value. Properties located in desirable neighborhoods with good schools and amenities will generally have a higher value than those in less desirable areas.
Condition of the property- The overall condition of the property, including its age, the condition of its roof, plumbing, electrical and HVAC systems, and any repairs or renovations that may have been made, can affect its value. Properties that are in good condition will generally have a higher value than those that are in poor condition.
Size and layout- The size and layout of a property can also affect its value. Properties with more square footage and a more desirable layout will generally have a higher value than those with less square footage and a less desirable layout.
Market conditions- The local real estate market can also affect the value of a property. A property’s value may be higher in a market where property values are rising and demand is high, while it may be lower in a market where property values are declining and demand is low.
Zoning and land use- Properties that are zoned for commercial or industrial use will generally have a higher value than those that are zoned for residential use.
Economic trends and demographics- Economic trends and changes in demographics in the area can also affect the value of a property. For example, an increase in population or new job opportunities can lead to an increase in demand for housing and a rise in property values.