Thanks to Craig Achtzehn with Draper & Kramer Morgage for this information ...If you’re on the fence about purchasing a home, here’s an important piece of advice: buying a home sooner
What You Need To Know About Home Appraisals
Dated: October 23 2019
Thanks to Michelle Gibson, REALTOR® with Wellington Home Team for sharing this information.
Home appraisals are an essential part of the home buying process. As a matter of fact, some say that they are more important than anything else. The more you understand about home appraisals the better it is. In fact, it could be a good idea to look at the home you are thinking about buying through the eyes of an appraiser.
What to Know About Real Estate Appraisals
Is A Home Appraiser Licensed?
Yes, a home appraiser must be licensed. They have to train to become what is actually known as a real estate appraiser. Most professionals who work as appraisers don’t only appraise homes.
When they train, they learn to appraise all sorts of properties. So appraisals aren’t just limited to single family homes. Yes, it easy to think that this is an easy job, but it is not. It takes many hours to qualify as an appraiser and be able to perform appraisals.
First of all, they have to study for roughly 70 hours to get their basic trainee license. After that, they have to work with a fully qualified appraiser and then go back to become fully qualified. What they need to know varies from state to state, and an appraiser has to work hard to keep up with the latest real estate standards.
It is a good business to be in. Since the crash back in 2008, appraisals are more important than ever before. Lenders will not lend money unless the home has been appraised by a professional and received a stamp of approval. This means the home must appraise for the contracted price.
Who Appoints the Appraiser?
Most of the time the lender will order the appraisal and a third-party servicing company assigns it. However, if you are buying a home or property for cash, you may want to appoint an appraiser for your own peace of mind.
The property that you are thinking about investing in may look great from the outside, but once the appraiser “gets stuck” in, unexpected problems are often found. After the appraisal process, the current homeowner often gets the chance to fix any problems that have been picked up. That can lead to a requirement for a second appraisal and/or home inspection of the property.
Who Pays for the Appraisal?
In most cases, the buyer pays for the appraiser. However, there are many lenders that like to “do deals” on fees. That could include paying for the appraisal or making a contribution towards the cost.
The average cost of an appraisal is between $300 – $500 and you pay for it along with the other closing costs of the home. Remember to budget for an appraisal when you plan your home purchase.
Occasionally, a homeowner wonders what their home will sell for in today’s market and hire an appraiser. By going this route they can shop around and in most cases spend less on an appraisal than a buyer may have to spend.
Why Do Lenders Insist On a Home Appraisal?
No lender wants to risk their money. It is essential to know that the home is worth what the seller is asking. That is what the appraisal is all about. Checking all work recently carried out in the home is an important part of the procedure. Did the owner pull permits? Has the work been approved and permit closed? This means the appraiser may look at the same items as the home inspector.
Higher risks used to be accepted before 2008, but lending regulations are now much tighter and all lenders are required by law to follow them. If not, they can be fined if there is a problem with the mortgage or property at a later date.
What Home Appraisers Look at When Appraising a Home
What Happens During a Home Appraisal?
The appraiser will go through the property for sale with a fine-tooth comb when conducting an appraisal. What an appraiser will check varies a little bit from state to state, but in general, you can rely on the appraiser to check the following:
The location of the property. Is it an urban or rural area?
State of repair, property improvements
Size of the garage
Has the home had any recent upgrades to make it greener?
Lenders are increasingly beginning to check for homes that have had upgrades to make them more environmentally friendly.
The Exterior of the Property
A few years ago, 15-minute appraisals used to be more common than they are now. Since lenders became more cautious, appraisers will check the exterior features of the property and many other factors. That could even involve checking the roof. As a result, appraisals now take roughly l 1 – 2 hours.
As we all know, roofs are notoriously expensive to replace. Without a good roof, the property may not be suitable for habitation.
Of course, an appraisal will also include checking doors and windows and looking for signs of subsidence. If the house does not look straight, or a chimney looks like it is collapsing, an appraiser may ask for a second opinion of a construction engineer.
Exterior walls will also be inspected and checked during an appraisal, and measurements are often taken to ensure the size of the home agrees to existing drawings.
What About Home Improvements?
If home improvements have taken place since the property was last sold, it is likely the real estate appraiser will check those as well. It is important for the lender to know that all of the relevant licenses are in place and that nothing has been added to the home which is not legal.
On top of that, expect to have all electrical installations inspected and checked during an appraisal. Don’t be surprised if the appraiser turns on all of the showers and flushes the toilets.
All appraisals are about making sure the home is in perfect working order.
Checking for Damp and Mold
This never used to be part of the remit of an appraisal, but many lenders now ask for this to be ticked off as part of the final report. Both damp and mold can hide problems.
Yes, the home inspector will have checked, but most appraisals will list a mold and damp check as part of the process. If you like, it is very much a fail-safe for the lender to make sure there are not going to be any immediate problems. Even an insurer recommended by the lender may ask for the appraisal final report.
What Sellers Can Do to Prepare for a Home Appraisal
Can the Current Home Owner Make it Easier?
The current homeowner can certainly help to make appraisals easier. Most importantly, it is a good idea to go through the home and look at the home with a critical eye. Would you want to buy your home in the state that it is in? If the answer to that is no, it is likely that the home will not pass an appraisal.
Try to see things from the lender’s point of view. It is all about selling a home that offers value for money.
Things a Home Owner Can Do To Ensure the Home Passes the Appraisal Process
It is not very difficult, and when you stop and think about it, it is all about common sense. If your home is in a good state of repair, you probably don’t have too much to worry about, but here are some of the essentials you should be check:
Is the roof in good repair? There should be no daylight coming through and tiles should not be missing or out of the place. If you notice an issue, get the problem fixed and keep the bills to show the real estate agent and the appraiser.
Problems with plumbing? This is another red flag. Once again get it fixed. While you are checking, make sure that you have no minor leaks, damp or mold in bathroom and kitchen areas. In some states, mold is now seen as a health hazard.
What about your wiring? When was the last time you had it checked? If the house is a bit older, it could be a good idea to have the wiring checked. Get a certificate that confirms everything is okay with the wiring.
Service the HVAC. Yes, an appraisal will include checking any pre-installed HVAC systems.
What about the gutters? Hey, gutters packed out with leaves and debris do not tell any appraiser that you love your home. Make sure they are cleaned out and in good repair.
Windows and doors – yes, they all need to fit and all security measures that you have installed do need to work.
One of the best things you can do is to make sure that the home is in good decorative order. That gives a good impression right from the start. Double-check that you have all licenses, builder’s guarantees, and bills. Also, bills for regular maintenance and servicing because they could be required.
Home Appraisal Requirements are Always Changing
Are Home Appraisals Going to Get Stricter?
In all likelihood, home appraisals are going to get even more rigorous. Environmental factors will play even more of an essential part than they do today. Smart homeowners invest in improved insulation, solar paneling, and even wind power generators. Water-saving devices are likely to form part of that picture in the future.
Money-saving steps taken by homeowners are considered favorably by lenders. The truth is that many environmental ideas save both money and the environment. It is likely that this will be part of the appraisal process in the future, and as a buyer, it could be worth asking yourself how green the home is that you are thinking about investing your hard-earned cash in.
A home appraisal is part of most real estate transactions. Therefore both the buyer and seller should understand what an appraisal is and how it can impact their purchase or sale. When a buyer knows who pays for an appraisal they are able to budget accordingly. And when a seller knows what an appraisal entails they can prepare ahead of time for the actual appraisal.
While an appraiser will look at many parts of the home and document their findings an appraisal is no substitute for a home inspection. So buyers should never assume an appraiser will perform the same tasks as a home inspector because they don’t. Most appraisals are purely visible while inspections are in-depth and hands-on. So if you are buying a home expect to pay for an appraisal and an inspection, don’t try to “save” money. And if you’re selling make all repairs prior to the appraisal and home inspection. By doing so it’ll make the odds greater of the home appraising and no repair requests.
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Additional Resources About Real Estate Appraisals
Why do appraisals come in low? Believe it or not, some homes do not appraise and there is usually a reason why. A majority of the time it’s because there are no comparable sales that support the sales price. Sometimes the improvements made have little to no impact, so there is no adjustment for upgrades. While other times the real estate market is moving so fast sales aren’t reflecting what’s actually going on.
In addition to a home appraisal and home inspection, buyers should consider having a mold inspection too. Certain molds are extremely toxic and in some cases deadly. Sometimes mold is visible, but a lot of times it’s hidden or airborne. Therefore the only true way to determine a home is mold-free is by doing additional testing.
A CMA, comparable market analysis, is not the same as an appraisal. A CMA is completed by a licensed real estate agent while an appraisal is completed by a licensed real estate appraiser. Both are ultimately opinions of value, but only one truly holds up when it comes to lending and that is an appraisal. A real estate agent can certainly provide their CMA to an appraiser and even the lender, but the lender is only going to take the appraisal into consideration.