Introduction
Understanding the appraisal process is essential if you’re financing a home purchase. Lenders typically require an appraisal to determine your property’s market value before approving your loan. This professional assessment helps them calculate the loan-to-value ratio and minimize their risk. The entire evaluation, from ordering to receiving your report, takes a few days to a week, with costs ranging between $300 and $500.
In this guide, we’ll walk you through what is the appraisal process, specifically covering how does an appraisal work from start to finish. We’ll break down the house appraisal process steps, explain what happens during the inspection, and help you understand what to expect after your home appraisal process is complete.
What is a property appraisal and why is it required
Definition of a property appraisal
A property appraisal is a written document that provides an independent assessment of your home’s market value. This professional evaluation is conducted by a trained, credentialed appraiser who examines multiple factors to determine what your property is worth. The assessment considers the condition and characteristics of the home itself, alongside external elements like location and current market trends.
The appraisal describes what makes your property valuable and often includes comparisons to other homes in your neighborhood. Appraisers evaluate several specific factors, including the size and design of your home, square footage, number of bedrooms and bathrooms, overall condition, structural quality, property maintenance, landscaping, and any extra features like swimming pools. They also analyze recent sales of similar properties in your area and broader market trends in the housing market and economy.
When lenders require an appraisal
Lenders require an appraisal when you borrow money to buy or refinance a home. This requirement applies regardless of whether you want a new mortgage or are simply refinancing your existing loan. The reason is straightforward: lenders use appraisals to calculate loan values and determine how much money they’re willing to lend you for the purchase.
The appraisal helps protect both the lender and you as the buyer by ensuring the agreed-upon purchase price aligns with the actual market value. If the appraisal comes in below the purchase price, lenders are likely to decline funding the deal. In order to proceed, you would need to cover the difference between the appraised value and the purchase price out of pocket, or renegotiate the sale price.
Who performs property appraisals
Your mortgage lender arranges the appraisal with a licensed appraiser, though you typically pay for it. In most instances, an Appraisal Management Company (AMC) assigns a licensed appraiser to handle your property evaluation. The AMC ensures the assigned appraiser can perform an independent and neutral assessment without pressure from the lender, buyer, seller, or any other interested party.
Appraisers don’t represent you or the seller. Their sole duty is to provide a fair and accurate valuation of the property.
The role of licensing and certification
Licensed appraisers must be designated by a regulatory body, ensuring credibility and accuracy. State appraiser regulatory agencies implement real property appraiser licensing and certification requirements based on criteria established by the Appraiser Qualifications Board under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.
Different certification levels exist based on property complexity. For instance, a Licensed Real Estate Appraiser needs 150 hours of approved courses and at least 1,000 hours of appraisal work experience over a minimum of 6 months. A Certified Residential Real Estate Appraiser requires 200 hours of courses and at least 1,500 hours of appraisal work over 12 months. The most advanced level, Certified General Real Estate Appraiser, demands 300 hours of courses, a bachelor’s degree, and a minimum of 3,000 hours of appraisal work over 18 months.
The house appraisal process: step-by-step breakdown
Ordering and scheduling the appraisal
Once you sign and return the loan disclosures, your lender orders the appraisal. The AMC then emails you a payment link. After you pay for the appraisal online, the AMC assigns a licensed appraiser to your property. The appraiser typically contacts you within 48 hours to schedule a visit to the home.
Property inspection and data collection
The on-site appraisal visit takes anywhere from 30 minutes to a few hours. During this time, the appraiser walks through your property and grounds, examining both interior and exterior spaces. They observe the quality of the home’s structure, construction, roof, and foundation, looking for any flaws or damages. Inside, they examine the square footage, number of rooms, layout, and structural integrity. The appraiser verifies that the home has basic necessities and takes photographs to document the property’s condition.
Researching comparable properties
Appraisers select a minimum of three recently closed sales that closely resemble your property. Ideally, they find comps within a one-mile radius in urban or suburban neighborhoods. These comparable properties typically have sold within the last six months, though that timeline can extend to twelve months in extreme circumstances. Appraisers focus on properties with similar square footage, number of bedrooms and bathrooms, lot size, and amenities.
Applying valuation approaches
Most appraisers use the sales comparison approach, which analyzes comparable sales of similar properties in the area. The cost approach factors in the cost of building an equivalent structure, less depreciation. The income approach applies to rental properties and estimates value based on the income generated.
Creating the appraisal report
Appraisers use a standardized format known as a Uniform Residential Appraisal Report. This seven-page document details the actions taken to complete the valuation and reviews market conditions where the home is located.
Delivering the final assessment
Receipt of an appraisal report typically takes one to two weeks from start to finish. Creditors must provide copies of appraisals promptly upon completion or no later than three business days before consummation, whichever is earlier.
How long does the appraisal process take and what does it cost
Timeline from order to report delivery
The full house appraisal process typically takes anywhere from a few days to three weeks. You can expect the appraisal report roughly 6 to 20 days from the beginning of the appraisal process. During busy seasons like spring and summer, longer wait times are common.
Factors that affect appraisal duration
Market conditions directly impact timing. In hot markets, appraisers become overwhelmed with orders, extending completion times. Property type matters significantly. Single-family suburban homes take 7 to 10 days, while luxury homes require 14 to 21 days due to fewer comparables. Rural properties can take 14 to 28 days because of limited comparable properties and larger coverage areas.
Appraiser availability creates another variable. Many appraisers are reaching retirement age, reducing the available workforce. The lengthy licensing process means fewer new appraisers enter the field.
Typical appraisal costs
Traditional home appraisals cost between $350 and $600 on average. The national average sits around $357. Government-backed loans typically cost more. FHA appraisals range from $400 to $700, while VA appraisals vary by state from $550 to $1,300.
Who pays for the appraisal
The buyer pays for the appraisal. Payment is due upfront, shortly after the mortgage application is received. The fee remains non-refundable even if the deal falls apart.
What happens after the appraisal is complete
Receiving your appraisal report
Your lender provides a copy of the appraisal report upon completion. If you’re selling, you can request one and the lender must provide it within 30 days.
When the appraisal comes in lower than expected
An appraisal gap occurs when the valuation falls below your purchase price. Banks lend based on appraised value, not your offer. If you agree to buy a home for $500,000 but it appraises for $470,000, the bank lends based on $470,000, leaving you to cover the $30,000 difference. Industry data suggests roughly 5% to 10% of appraisals come in below contract price.
You have several options: renegotiate the purchase price with the seller, bring additional cash to closing, meet in the middle where both parties absorb part of the gap, or walk away if your contract allows.
Requesting a reconsideration of value
You can submit a reconsideration of value (ROV) to challenge the appraisal. Work with your agent to provide comparable sales that support a higher value. Contact your lender with specific errors or oversights in the appraisal report. Borrowers may request a maximum of one ROV per appraisal report.
Understanding appraisal contingencies
An appraisal contingency is a contractual provision that makes the transaction dependent on the property appraising at or above the purchase price. Without one, you risk losing your earnest money if you walk away from a low appraisal.
Addressing potential appraisal bias
Appraisal discrimination refers to bias based on race, national origin, or other protected classes. Homes in majority-Black neighborhoods are around two times more likely to be appraised under contract price than homes in majority-white neighborhoods. If you suspect discrimination, you can file complaints with state appraisal boards or request an ROV.
Conclusion
The appraisal process might seem complex, but understanding each step helps you navigate your home purchase with confidence. From the initial inspection to receiving your final report, you now know what to expect and how to handle different scenarios. If your appraisal comes in lower than anticipated, you have options. Work with your lender and agent to find the best solution for your situation and move forward with your transaction.
