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The Home Appraisal Process

Given the low interest rates we are currently seeing for mortgages, my husband and I decided to refinance at the end of 2020. We’ve lived in our home for almost five years, and this is certainly not our first rodeo. This is the third house we’ve owned and we’ve been through the buying, selling and refinancing process several times. For this reason and the fact that I’m a licensed realtor in New Hampshire, I thought I knew everything there was to know about the appraisal process. You can always learn something new, though, which lead me to this blog post.

Home appraisals are a key component whether you are buying, selling or refinancing a home. An appraisal is typically one of the first steps for any of these transactions. This is because an appraisal is an unbiased, professional opinion about a homes’ value. As I admitted above, I’m no expert. This post is meant to give some background on the process. If you are planning on refinancing, buying or selling, the next step after reading is definitely to talk to a lender.

To draft this post, I went online in search of easy-to-understand content about the appraisal process. I found several articles on Investopedia.com that were helpful, particularly this post “What You Should Know About Home Appraisals.” The article covers basic information about the appraisal process and highlights specifically what buyers, sellers and homeowners who are refinancing need to know.

My look at the appraisal process won’t go that deep, but here are some key facts to get you started:

What is the purpose of the appraisal?

The home serves as collateral for the mortgage, and banks need to ensure homeowners are not over-borrowing. The appraisal enables the bank to protect itself against lending more money than the home would be worth if a sale was required to pay off the loan.

Who orders the appraisal and who pays for it?

The appraisal is to protect the bank, so the bank orders the appraisal. However, the borrower is asking for the loan and they are responsible for the cost of the appraisal. For example, the individual(s) buying the home, not the seller, would pay for the cost of the appraisal, as they would be applying for the mortgage.

Who conducts the appraisal?

A licensed or certified appraiser who is familiar with the local area will conduct the appraisal.

How does the appraiser determine value?

A property’s value is influenced by recent sales of similar homes and market conditions in the area. The appraiser will conduct an inspection of the interior and exterior of the property. This inspection focuses on several factors, including number of bedrooms, bathrooms, floor plan, square footage, and location; as well as any repairs needed inside or out. After this, the appraiser will put together a detailed report; typically using the Uniform Residential Appraisal Report for single-family homes from Fannie Mae. The report includes many details about the home, comparable recent sales in the area, and a determination of fair market value for the appraised property.

Can you prepare for a home appraisal?

As a homeowner, there are things you can do to prepare your home. Small repairs should be completed, like patching any walls, and paint can be touched up both inside and out. Another important to do before an appraisal, a good cleaning! Clearing clutter can allow an appraiser to truly see the home. If you are the homeowner, I found this post on Investopedia very helpful. It focuses on the appraisal process for a refinance but is also useful if you are selling.

Finally, if you are wondering what the difference is between an appraisal and home inspection, this Keeping Current Matters’ post provides those details. The appraisal is for the bank and looks at market value; the home inspection is for the buyer and looks at the condition of the home.

Hopefully, like me, you’ll know something new about this process after reading this post and the corresponding articles. It’s an important one in order to close any home sale, purchase or refinance.