Home Appraisal Process

Most homeowners and buyers are very nervous and don’t quite know what to expect. Or what’s expected of them. If your client fits into this category the only way to be of service is to be educated on the appraisal process and their options so you can then educate them.

An appraisal is an estimate of what a home is worth. Lenders will require an appraisal so they know you aren’t borrowing more than the property is worth. Appraisals only value real property, land and improvements to the land. While an appraisal is an opinion, it is not completely subjective. The Federal National Mortgage Association (also known as Fannie Mae, a corporation sponsored by the US government) created guidelines to assign specific values to assets of your home to ensure fair sales.

How is the value calculated?

The first step of an appraisal is actually a comparison. The appraisal specialist searches for other real estate and property (they need at least three) in your area with similar:

Number of bedrooms

Number of bathrooms

Square footage

Amenities and components

Land

Adjustments are made for amenities and other features that differentiate your home from the comparison samples.

A home appraisal is not an inspection. An appraiser only values the real estate and property, (s)he does not determine what is, or is not, in working order. Home inspectors provide these services.

Who hires an appraiser? Who pays for it?

Typically, the lender will send an appraiser to a home they are considering funding. Because the lender has the most to lose (the bulk of the value of the home), they are entitled to choosing their favorite neutral professional to assess their risk. Sometimes, though, they will allow the buyer to choose one.

While the lender uses and hires an appraiser, the buyer actually pays for it. Sometimes payment is due within 30 days and payable to the appraiser, sometimes it’s included in closing costs. Either way, the money eventually comes out of the buyers pocket.

Do I have any recourse if a home is undervalued?

If you are representing a home and the appraisal values the home less than the asking or negotiated price, the lender usually will not complete the mortgage loan. If you believe the home was undervalued legitimately you have two options:

1. Seller can lower price

2. Buyer can put the difference between negotiated price and appraisal value

If you believe the real estate was undervalued on accident or would like to file a complaint, you should first call the lender and the appraiser with your grievance. Often, a lender will allow for another appraisal to take place (you’ll end up paying for both). If the second (or third, fourth, etc.) appraisal still undervalues your property, you can file a complaint with the licensing or regulatory board in your state.

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