Unless you are paying cash for your new home, you’ll need a home appraisal conducted before the lender will approve your loan. That makes sense, as no lender is going to let you borrow more money than a property is worth. If you have questions, such as the home appraisal process and how long does it take, rest assured it is not generally a long time. Most appraisals are finished within two weeks, and often earlier.
The Home Appraisal Timeline
Your lender may arrange the home appraisal, although the seller will eventually pay for it at closing. Appraisal prices vary by region but are usually several hundred dollars. The home appraiser is an independent third party, not a bank or mortgage broker employee, and requires state certification or licensing. The appraiser is expected to provide an unbiased report on the market value of the dwelling.
The actual time the appraiser spends in the home is usually not that long, with most appraisers completing that part of the job in less than an hour. The appraiser views the interior and exterior of the home, noting its condition and any upgrades or additions, as well as the property’s location and age. They note the square footage, number of bedrooms and bathrooms, size of the lot and views from the home. Once they have this information, the appraiser will research comparables, or “comps” in the area. Those are homes with similar characteristics that sold within a recent timeframe. Houses in subdivisions usually have a reasonable number of comps available. It’s the “one of a kind” house, for whatever reasons making it unique, that is more difficult when it comes to determining comps.
Home Appraiser Versus Home Inspector
Keep in mind that an appraiser is not a home inspector. That’s another part of the home buying process, but an inspector checks to make sure all of the home’s infrastructure is in good working order and lists any repairs needed. The inspector is not interested in the home’s market value. If there are repairs needed, the seller must make them, or the buyer can negotiate to have the costs of the repairs taken off the purchase price. Of course, it is possible that a home inspector will find a problem affecting the structural integrity of the house, such as a cracked foundation. The contract should also list such major repairs as a withdrawal contingency.
FHA Appraisal Timeline
If you’re taking out an FHA loan, which requires only a 3.5-percent down payment, the process is somewhat different. Under FHA regulations, only HUD qualified appraisers may perform the work. The home is both appraised and inspected to ensure it meets minimum HUD property standards. The appraiser is especially looking for any health and safety issues concerning the house. If the appraiser finds such issues, such as loose handrails, that information is included in the report and requires correction before the loan is approved.
That’s not the case with conventional mortgages, so the HUD appraiser is, in essence, performing double duty, determining market value and overall safety. The HUD inspection focuses on the foundation, roof, HVAC systems and grade of the lot, as well as crawl spaces if the home has them. If a house was built before 1978, it might have lead-based paint within it. The appraiser checks such homes for peeling or chipping paint, and if found, the paint requires removal before loan approval.
That doesn’t mean you don’t need a regular home inspector if you go the FHA loan route. HUD doesn’t require such an independent inspection, but they strongly encourage it. Home buyers must sign a HUD disclosure stating that they understand the home inspection’s importance. While the appraisal process per se is not longer than that of a conventional mortgage, the time it takes to make the necessary repairs can affect the appraisal timeline.
Low Home Appraisals
Problems result when the appraisal comes in lower than expected and the bank will not approve the loan. What happens next can affect the home closing timeline or even cancel the sale altogether, as sales contracts include contingencies regarding appraisal results. The buyer must negotiate with the seller to lower the asking price. If the buyer wants the house and the seller will not budge, an alternative is coming up with the difference in cash between the amount the lender is willing to loan and the asking price. However, that is not a wise idea for most buyers, no matter how much they love the property. Even if the plan is to stay in the home “forever,” life may go in a different direction, and the buyer may have to sell. They could end up losing money on the deal.
Many sellers will negotiate because they realize another appraisal may come up with a similar figure. Some sellers will want a second appraisal, but it is rare that a second appraisal will differ significantly from a primary appraisal. Appraisers are heavily regulated and must substantiate the values included in their reports. Some circumstances can tilt the appraisal, and these often have to do with neighborhoods in which a lot of foreclosed homes were recently sold. This brings down the market value of the comps. That is one way a seller can challenge an appraisal if they have documentation that such short sales or foreclosures affected the value of their property, which is presumably in far better condition than the comparable homes.
Once in a while, the appraisal will come in above the contract sales price. Unless the amount is substantial, it is unlikely the seller will try to renegotiate the contract. In effect, the buyer got a good deal and instant equity.
The Refinance Appraisal
You’ll need a home appraisal not only when purchasing a house, but when you want to refinance your mortgage. The property must appraise at the amount you want to refinance, or ideally above it, to qualify for refinancing. That’s true for conventional mortgages, but not for FHA loans. The FHA does not require an appraisal for homeowners who want to refinance.
How a Seller Should Prepare
As a seller, you do not want your house to come in at a lower than expected appraisal. While there’s not a great deal you can do to up the appraisal, you can ensure the property is clean and the lawn mowed and landscaped. Before the appraisal, make a list of the home improvements you have made, along with the date so that you can give them to the appraiser.
That may include a new roof, new appliances that stay with the house, new air conditioning, furnace and whatever else you’ve had done. Just remember that some improvements, such as a new bathroom or a complete kitchen remodel, are not going to bring you a dollar-for-dollar upgrade in the home’s appraisal. You may have spent $50,000 putting in a state of the art kitchen, but that doesn’t translate into an automatic $50,000 increase in your home’s value.
Have your real estate agent meet the appraiser and come prepared with a list of comparable homes in the area that are under contract but not yet closed. This is important information for the appraiser to have when considering comps since comps are usually only those homes that have already sold.
A graduate of New York University, Jane Meggitt's work has appeared in dozens of publications, including PocketSense, Zack's, Financial Advisor, nj.com, LegalZoom and The Nest.