What You Need To Know About Home Appraisals

Here are 5 things you need to know about home appraisals as you go through the home-buying process.

1. Appraisals can be different. To appraise a home, the appraiser will look at similar homes in the area, and then formulates a number based on those samples. No two homes are exactly alike, however, and it can be difficult for the appraiser to know the condition of every property. Because of this, appraisers have to make some assumptions about the homes that have sold. The appraiser might assume the homes were all in similar condition to yours, or they might make assumptions about the home’s condition based solely on pictures of the home exteriors. Because of these assumptions, different appraisers might come up with different values for the same property on the same day.

2. Sometimes, home values are hard to pinpoint. If your home is in a neighborhood where there are relatively few recent sales, the appraiser’s formulas and methods of calculating value can become a lot less exact. In some cases, they might have to use homes from neighboring ZIP codes or look back several years to find comparable properties that have sold in the area. It’s also difficult to assign value to homes with unusual features, such as horse barns and in-ground swimming pools. In these cases, the number that the appraiser comes up with might be hard to justify, but also hard to prove wrong. 

3. Your bank needs to have an appraisal to give you a mortgage. While it’s a good idea for you to know the value of a property before you buy it, your bank will need to see a copy of the appraiser’s report as well. The bank will use the appraised value to determine how much you can borrow. Different mortgage products require different down payment amounts. The appraised value will affect the type of mortgage product you’ll be able to get.

4. Your appraised value can change considerably. Appraisals can only give an assessed value for a home on a particular day. Because the real estate market changes frequently, however, there is no guarantee that the home will be worth this much several years or even months from the date of the report. All too often, homeowners are shocked to discover that the value of their home has fallen below the amount it was appraised at several years prior. Similarly, the value of a home can dramatically increase with the right market conditions. The condition of the home can also be a big influencer.

5. Read your appraisal carefully and ask questions. Read the report that the appraiser provides carefully, and if you believe there was a mistake, speak up. Is the room count correct? Did the appraiser miss a bathroom? Are there a lot of adjustments made when comparing the home to others that recently sold? Your loan officer and realtor can help you decipher the information in the report. Ask the seller of the home to provide more information about when updates were completed and make sure that information is included in the report.

Also check the property records of similar homes that were used for comparison and point out any discrepancies that you are aware of. Remember, if you’re purchasing a home and the appraised value is lower than the agreed upon purchase price, you may have an opportunity to negotiate with the seller. Be sure to ask your realtor about putting an appraisal contingency in your purchase and sales agreement.