The appraisal is essential for you to secure funding for the house, but you know that it can completely disrupt your agreement. As you await the appraisal report, it is common to feel a little nervous. But relax! The appraisal process doesn’t take too long, and no matter the outcome, there will be options available.
Why do you need a home appraisal?
An appraisal reports the market value of a home. A mortgage lender generally requires these before closing on the house, so even though terms have been agreed upon, you won’t be able to close on a house until a report comes in.
The seller will have already had the house appraised before they listed it for sale. But, mortgage lenders still require an appraisal by a third-party to ensure the price listed or agreed upon is accurate. After all, they need to know that the investment they are making is a safe one.
If you are purchasing the house entirely with cash, then there is no legal obligation to conduct an independent appraisal. You and the seller can agree to terms and close the deal. However, you can still purchase an independent appraisal to make sure you are not getting ripped off on the purchase price.
How does the appraisal process work?
Once the lender hires an appraiser, there are three steps to the appraisal process: home inspection, comparing similar homes, and compiling the report.
Hiring an appraiser
Once you have the house under contract, you will have to start negotiating with mortgage lenders. When you find a lender with agreeable terms, the lender will hire an appraiser and wait for the report before signing the deal. An appraiser will typically respond within 12 - 48 hours.
The lender contracts the appraisal with a third-party company to ensure the report is unbiased and licensed. However, the cost will be thrown in with the rest of the buyer’s fees. These costs are typically between $300 and $600 but could become more expensive for a variety of factors, including the expertise of the appraiser and the location of the home.
After an appraiser has been hired, he or she will set up a time to visit the house for an inspection. This is an examination of both the inside and outside of the house. To get a full picture, the appraiser might ask the seller or the broker to share details about major home improvements or other repairs that should not go unnoticed.
The inspection is done to fill out a Uniform Residential Appraisal Report. This examines the house, of course, but it also includes the repairs, neighborhood insights and trends, lawn condition, quality of utilities, and dimensions.
Number and purpose of rooms (i.e., bedrooms, bathrooms, and kitchens)
Functional layout and structural integrity
Included utilities, appliances, and amenities
Condition of walls, stairs, floors, doors, ceilings,
Health and safety regulations
Age and location
Quality of the property’s site
Quality of the construction
Integrity of the roof and foundation
Condition of gutters
Parking and garage
Exterior paint or siding condition
How long does the appraisal inspection take?
This inspection usually ranges between 30 minutes to a few hours and is completed in one day. The exact length of the inspection depends on the quality of the home, buyer’s readiness to provide details, size of the house, and location of the house.
If you are applying for an FHA or VA loan, the appraisal will be more stringent. Both FHA and VA appraisals demand more insights and attention to detail than do most conventional appraisals. Historically, these appraisals have taken several weeks to complete, but in recent years that process has been shortened to an average of only one week.
Once the home inspection is complete, the appraiser will return to his or her office to finish up the report. The next step will be to verify with city records the age and size of the property. They will begin comparing the house to other similar homes.
The home comparison process looks at houses that are similar in size, age, and location. These houses must have been recently sold or are currently being sold to gauge the fair market value.
Advanced appraisal software has made this process a relatively quick and easy one. The appraiser can punch in a few data points, and the software will spit out a list of the relative homes. The appraiser will then double-check to make sure the houses are, in fact, similar before completing the calculation.
This part of the process varies in length. If the home in question is comparable to numerous homes nearby, then the process will be pretty quick. But, if the home is unique in both style and location, even with the software finding comparable homes might take more time.
Compiling the report
At this point, the appraiser will calculate a fair market value and compile all the data into the report. The report will include some of the main points from the inspection and comparison process. It will also detail the logic behind the house’s evaluation.
The valuation will likely be a result of one or more of these three strategies:
Cost approach: previously listed prices for this home
Income approach: how much could it be rented for
Comparison: focuses on the pricing of similar homes
Because the reports can be pretty lengthy (10 - 15 pages) and they need to be clearly and accurately written up, this part of the process can take several hours to complete.
So how long does the entire home appraisal process take?
The entire appraisal process, from the lender’s initial request to the inspection, to receiving the report, will likely take between 2 and 7 days.
What might delay the report?
Appraisers are pretty good at getting the report done within one week. Things like market demand, unforeseen weather, or the seller or broker’s inability to meet right away can prolong the process. But, this will usually only add a day or two on to the process.
As long as the report lists the market value at or above the agreed-upon terms, you will be ready to close on your dream home!
But, if the price comes in significantly lower or significantly higher, then you will likely have to return to the negotiation table. You can still secure your dream home, but it will just be at a different price.