Home appraisals: Everything you need to know

Make sure you know what to expect when going through an appraisal. (iStock)

When you're buying or selling a home, one of the most essential steps is an appraisal. Most buying or selling transactions that involve lenders require an appraisal. However, even buyers or sellers who opt to work with cash should consider an appraisal. During an appraisal, a professional visually inspects the home, compares recent sales or similar properties in the area, market trends, facts in amenities, and determines the home's value. The appraisal process is similar whether you're a first-time homebuyer or currently an owner with home equity.

Why do you need a home appraisal?

The housing market is tight. In March, the number of houses for sale on the market represented roughly a 4.8-month supply, according to the United States Census. There are around 493,080 active listings on the market at publication, a 52% decrease from the year-over-year average. Since houses are harder to find, there's more competition, which can encourage higher housing prices.

As a buyer, an accurate appraisal will ensure that you don't pay more for a home than it's worth. Some lenders won't approve a loan if the home appraises for less than the sales price. Sellers want a home appraisal to maximize the amount they earn from the sale of their property. What you think a home is worth may not be what the appraisal comes in at and it can even be lower than expected.

When you're ready to move forward with the home buying process, you can explore your mortgage options by visiting Credible to compare rates and lenders.

Do I need a home appraisal for a refinance?

Some homeowners may be able to qualify for a home refinance without an appraisal. Borrowers with federally backed loans could be eligible for an appraisal waiver, according to the Federal Housing Finance Agency Office of Inspector General. Some private lenders offer a waiver as well. However, even if you can get a home refinance without an appraisal, that doesn't mean you should.

If you opt for an appraisal waiver, your lender will use an automated tool to estimate your home's value to determine whether to approve your refinance application. You may want to choose a traditional appraisal if you believe your home has increased in value, as this can help you lower your interest rate or obtain approval for a higher cash-out refinance. If you pay for private mortgage insurance and have at least 20% equity in the home, an appraisal can remove the PMI from your monthly payment.

If you're considering a refinance, finding the right lender is the best way to save money. You can explore your mortgage options in minutes by visiting Credible to compare rates and lenders. Check out Credible and get prequalified today.

How much should I pay for a home appraisal?

A home appraisal cost on a single-family home can range between $300 and $500. Multi-family homes cost between $600 and $1500. Appraisal costs will vary based on the size of your home, level of detail, and location. Traditionally, the buyer will pay home appraisal fees. You can pay for the appraisal fee right away or have the total added to your closing costs. Remember, though, that even with mortgage rates low and a decent purchase price, closing costs add up quickly and they can ultimately raise your monthly payment if you have them rolled in.

If you're refinancing your home, you'll need to cover the cost of your appraisal. The value of your home and the condition of the home at the time of appraisal is key here. Your lender will choose the appraiser for a non-biased analysis.

As you're preparing for your refinance, visit Credible to get in touch with experienced loan officers and get your mortgage questions answered.

What does an appraiser look for in a home?

When an appraiser looks at a home, they'll consider many things, including:

  • Home size
  • Year built
  • Wall and flooring material
  • Roofing
  • Number of bedrooms and bathrooms
  • Lot size
  • Lot position and location
  • Condition of major appliances
  • Condition of HVAC and other systems
  • Structural issues
  • Parking
  • Curb appeal
  • Neighborhood
  • Basement and attic
  • Garage
  • Home renovations
  • Comparisons between your homes and similar properties in your area that recently sold

While there are some things that you cannot change about your house, maintaining your home goes a long way towards a higher appraisal.

How is an appraisal different from an inspection?

While an appraisal and an inspection operate similarly, they are not the same thing. An inspection tells the buyer, seller, and lender the condition of the home. The inspection will highlight safety and code issues. Home inspections are not required by lenders (though highly recommended), and you can schedule the inspection yourself. An appraisal is typically required by lenders and set up through the lender. The appraisal focuses on the value of the home and property.

When you're buying a home, make sure to use an online mortgage calculator to determine your monthly payments. Don't forget to factor in closing costs (like the appraisal and inspection) to ensure you have a more accurate estimate.

Home appraisals are the industry standard for helping buyers, sellers, and lenders determine a home's value. Appraisals can help buyers save money, sellers earn money, and give homeowners have a more well-rounded view of their finances.

Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at moneyexpert@credible.com and your question might be answered by Credible in our Money Expert column.