How home appraisals work

If you’ve been in the market to buy or sell a home before, you know how important  appraisals can be. If you’re just starting out, you might not be aware of the power of this part of the mortgage process.

An appraisal is one of the final reasons why a bank will lend you the money to purchase a home. It’s also essential for the buyer, which can save them from overpaying for a property. That being said, here are the reasons why the appraisal is so critical.

For starters, the appraisal itself is conducted by a professional, outside company that evaluates the fair market value of a home or property. If that sounds a bit complicated, it’s really not meant to be. The appraiser arrives at a property, usually with camera and tape measure, to make sure that the home is worth, in real life, what people think it should be worth on paper — the selling price  

The appraiser notes the number and measurements of rooms, garages, bathrooms, recreation rooms, and all other spaces inside a house, along with the condition and dimensions of the land the house is located on to come up with that fair price. The appraiser will also consider any renovations or home improvements to the home as a factor when determining the value.

Usually, the appraiser will use a grid to fill out the various factors that make up a house, including windows, driveway, type of heating units, and other similar categories. When the appraiser has finished, they will send copy of the appraisal to the buyer, and to the loan officer.

Chesapeake Bank Mortgage Loan Officer, Dianne Pillsbury, says that “the appraisal is typically requested once the loan is approved by the underwriter, unless the buyer would like the appraisal before the underwriter’s approval.” 

One important note is that the appraiser will also take into account the shape of the houses close by and come up with similar properties to help determine the home’s value. Looking at “comparables” or “comps” usually means looking at the records of similar homes in the area, which were sold within the past few months. This is done with a search of the Multiple Listing Service (MLS) records, an enormous nationwide database of housing records. Typically, the appraiser will look for at least three “comps” to measure the property in question.

An appraisal usually costs between $300 and $500, depending on what region of the state you’re in. The fee from the appraiser can be  built into the closing costs of the home loan.

If the property’s assessed value comes back lower than what the buyer had agreed to pay, then there can be a renegotiation with the seller to come to an agreement.

Many things can affect an appraisal beyond what is listed above. Luckily, our Mortgage Lending team here at Chesapeake Bank have all been through hundreds of appraisals with clients and can guide you on the best steps in the process.