How Do Appraisals Work?

Getting and accepting an offer from a buyer is incredibly exciting! But there are a few more items to tackle before you get to closing. Typically your buyer will want to have an inspection done, and their lender will want to get the property appraised (learn about the difference between an inspection and an appraisal).

If your appraisal isn’t as high as your buyer’s offer, it could delay your sale, or even cause the deal to fall through. So, it’s important to understand why appraisals are done and how exactly they work. 

A home’s appraised value is determined by an unbiased professional to provide the buyer’s lender with an objective number on how much a property is worth. This mitigates risk for lenders, who can then be sure that they’re not lending buyers too much, compared to home values. Lenders do this so that if the buyer ever defaults on the mortgage and the home goes into foreclosure, the money lent can be recovered by selling the house. 

Knowing that an appraisal can put a cap on the potential sale price of your home, it’s important to understand  what goes into the appraisal.

How do home appraisals work and what do appraisers look at?

To kick off the process, generally, the lender will select a home appraiser to value your home, after which an appointment will be scheduled. On the day of the appraisal, you or your real estate agent should be present to explain any recent updates and the value they add and to share comps that justify the sale price.

To determine fair market value for your home, the appraiser will look at a variety of  factors, including:

The physical condition

An appraiser will look at the general condition of your home, both inside and out. They’ll look for any signs of wear and tear, but they’ll also look at the size of your home, it’s layout, the number of bedrooms and bathrooms, and any recent updates you’ve made. Your Realtor® should be prepared with an itemized list of any recent updates, but they should also be present to understand the appraiser’s reasoning and discuss any discrepancies in value.

Comparable home sales (comps)

An appraiser will take a look at comps—homes similar to yours in size, location, condition, and other factors—to help determine a fair value for a home. By analyzing what comps have sold for, an appraiser can get a more accurate idea of the value of your home at the time of your sale.

The neighborhood

Why does this matter? If your home is near to or far from schools, stores, and public transportation, its value could be affected. If your home doesn’t really fit in with the neighborhood, this can also affect your appraisal value. For example, if your home stands out for being very modern and trendy in an area full of older or more traditional homes.

Once completed, the final report will include a building sketch and photos of your home, information on and pictures of the comps used to calculate home value, market sales data, and even public land and tax records.

How much do home appraisals cost? 

Appraisals can cost anywhere from $200-$600, and the average is generally around $300-$350. If you have a larger property or live somewhere that doesn’t have many appraisers, the appraisal will likely be on the high-side. 

Because appraisals are ordered by lenders representing the buyer, the appraisal is usually paid for by the buyers at closing.

How to prepare for a home appraisal 

Home appraisals are an important part of the closing process. They heavily impact the sale price of a home and can pose serious risks to the transaction. While you can’t change the location of your home or recent sale prices of similar homes in your neighborhood, there are several improvements you can make to increase your home’s appraisal value.

There are many things you can do to increase its worth including:

  • Take care of repairs and making upgrades recommended by your Realtor®
  • Improve your home’s curb appeal, which includes both the exterior of your home and your landscaping
  • Modernize your home’s interior by replacing worn-down flooring, painting cabinets, and swapping hardware and light fixtures
  • Increase living space by finishing out basements and attics to be used as flex space

Work your Realtor® and Curbio to determine which updates will have the most significant impact on your net profit. Get started by having your agent submit a request for an estimate today