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How a home appraisal works

If all goes well, you may not have to do anything during your home appraisal.

A home appraisal sometimes comes as a surprise to first-time home buyers. It may not be talked about as much as other parts of the home buying process, but it is an important step. The good news is, there’s not much home buyers have to do during home appraisals except wait. It’s still helpful to know why and how home appraisals happen, so you know how to react when you get the results.

  • What is a home appraisal?

    A home appraisal is an unbiased evaluation of a property’s market value. Mortgage lenders require home appraisals to make sure they’re not giving a borrower a mortgage worth more than the house it’s meant to finance. If that happened, and the borrower ended up walking away from the home, they couldn’t make up for the loss by reselling it.

  • Who performs home appraisals?

    Home appraisals are done by professional, certified real estate appraisers. They must be both trained in appraising homes and familiar with a local area to be able to work there. They also must have no relationship with anyone involved in the home purchase.

  • How does an appraiser determine a home’s market value?

    Home appraisal isn’t an exact science, but appraisers use a lot of data to make as accurate an evaluation as possible. They evaluate the size, floor plan, and condition of the property, recent comparable sales in the neighborhood, as well as other factors that affect the market, such as recent infrastructure investments. Home appraisers also use public property records and other public documents to support their appraisal.

  • What does the buyer need to do?

    Not much. The mortgage lender orders and schedules the appraisal. You’ll be busy scheduling your home inspection around the same time, so you’ll just want to be aware enough of the appraisal process to not schedule your inspection at the same time.

  • How could the results of an appraisal affect a home purchase?

    If your appraisal comes in at or around the price in your purchase agreement, you’re in good shape. Mortgage lenders typically want to lend no more than 80 to 97 percent of the home value, so if your down payment is between 3 and 20 percent, you should be fine, depending on your mortgage lender’s exact rules.

    If your appraisal comes in higher than the price in your purchase agreement, congratulations. You and your real estate agent negotiated a great deal.

    If your appraisal comes in too low, that’s when things get a little tricky. If the seller agrees that the appraisal is fair, they may be open to negotiating a lower price. But if the appraisal is just a bit lower than the mortgage lender wants to see and you have put less than 20 percent down, they might ask the buyer to compromise and put down a larger down payment to make up for the portion of the purchase price the mortgage lender won’t finance.

  • What should a buyer do if they think their appraisal is wrong?

    If an appraisal is so far off it threatens your home purchase, and you believe it’s due to an error, you can ask for a reevaluation. Home appraisers are human, and they do make mistakes. You have the right to see the appraisal report, which should be your first step if you think an error has been made. You can check through all the data the appraiser used to come up with their evaluation. If you see a major mistake, a reevaluation may be in order.

    Once your home appraisal is underway, you’ll need to get your home inspection going. Here’s what you need to know about how home inspections work.