A home appraisal evaluates a property’s worth in the real estate market. Typically, a professional appraiser is the person who assesses various aspects of the home to determine its value.
In addition to a physical inspection, the appraiser also conducts a market analysis to understand the current market trends and how the home fits within them. Once the inspection and market analysis are complete, an appraisal report is written so all parties involved in the real estate transaction understand the fair market value of the property.
In this blog, we’ll explore several of the key steps and what to expect during the home appraisal process.
Once a home appraisal is requested, typically by a lender in a home purchase or refinance scenario, an appointment is set up for the appraiser to visit the property. The homeowner or real estate agent should be prepared to provide access to the property at this time.
During the property inspection phase of the home appraisal process, a professional appraiser conducts a thorough examination of the property. This is an essential step in determining the home’s value and involves evaluating both the interior and exterior of the home.
When inspecting the exterior, the appraiser assesses the home’s overall condition, including the foundation, roof, siding, and landscaping. They also take note of the property’s location, size of the lot, and any additional structures like garages or sheds.
Moving inside, the appraiser looks at the overall layout of the home, the number of bedrooms and bathrooms, and the size of key areas like the kitchen and living rooms. They also pay attention to the condition and age of major systems such as plumbing, electrical, heating, and cooling.
Upgrades and improvements are another important factor during the inspection. The appraiser will note any renovations or remodeled areas, such as an updated kitchen or bathroom, and high-end features like hardwood floors or granite countertops, which can add significant value to the home.
The appraiser also looks for any necessary repairs or maintenance issues that could negatively impact the home’s value like water damage, mold, aged roofing, or outdated systems.
The purpose of this detailed inspection is to gather all the necessary information about the property’s condition, features, and any factors that could affect its market value.
A market analysis is a crucial part of the home appraisal process, providing context and comparison for the property being appraised. This analysis helps determine the home’s fair market value, which is the price it would likely sell for under current market conditions.
The market analysis begins with identifying comparable properties, also known as “comps”. These are similar homes in the same area that have recently sold. The appraiser typically selects comps that are most similar to the subject property in terms of size, age, style, condition, and location.
The appraiser subsequently evaluates the subject property alongside these comparables, taking into account various elements such as the selling price, the count of bedrooms and bathrooms, the total area in square footage, and any distinctive features or enhancements. This comparison helps the appraiser understand how the market values certain features and can highlight if the home being appraised is over or under-valued compared to similar properties.
In addition to using comps, the appraiser also considers broader market trends, such as the overall health of the real estate market, supply and demand dynamics in the local area, and any foreseeable changes in the market.
By combining the data from the comps with the larger market trends, the appraiser can make an informed assessment of the home’s market value. This value may not be the same as the listing or purchase price, but it reflects what the property is likely worth in the current market.
After conducting the property inspection and market analysis, the appraiser consolidates their observations and conclusions into a comprehensive appraisal report. This report offers an in-depth analysis of the home’s worth and the elements that played a role in determining it. It includes information about the property’s features and condition, the comps used, and an explanation of how the appraiser calculated the home’s value.
Review by Lender
Once the appraisal report is complete, it is sent to the lender. The lender reviews the report to determine whether the appraised value of the home supports the loan amount the borrower has requested. If the home appraises for less than the requested loan amount, the lender may decline the loan or require the buyer to make up the difference.
The home appraisal process is a critical step in mortgage lending. Our loan officers are dedicated to ensuring a smooth and successful transaction. If you have any questions on this, please contact us today.