Reader question: “We just signed a contract with a seller to buy their house, and I’ve been told by my loan officer that the bank is now going to have the property appraised. What exactly happens during the home appraisal process? Does the appraiser actually visit the property being purchased, and if so can the buyer attend? I’d like to see what his methodology is, as far as determining the value.”
Yes, the appraiser will actually visit the house during the home appraisal process. There is no specific rule that says buyers cannot attend, but the process is typically handled by the appraiser alone. You would have to contact him to see if you can be present when he visits the house. He will actually coordinate with the sellers to schedule his visit, since they live in the home. And they might be present when he comes to evaluate the property. So I can’t say whether or not you’ll be able to attend. It varies.
Let’s move on to your other question: What happens during a home appraisal? Here’s a quick overview of the process.
What Happens During a Home Appraisal
For the most part, this is a hands-off process for both the buyer and seller. The homeowner will have to give the appraiser access to the home, unless there’s a lock box on the front door. Aside from that, the buyer and seller do not really need to be involved in the appraisal process at all. It’s the bank or mortgage lender that orders it, because it protects their interests.
Here’s what happens leading up to, and during, the home appraisal process:
- The buyer / borrower makes an offer to buy a house.
- The seller accepts the offer, eventually, and the two parties sign a purchase agreement.
- The signed purchase agreement will then go to the buyer’s mortgage lender.
- The lender will order an appraisal. They are almost always required when a home loan is used.
- The appraiser will visit the property and compare it to recently sold homes to determine its value.
- The lender wants to know if the house is worth what the buyer has agreed to pay for it.
- If the home appraises at or above the agreed-upon purchase price, the loan will likely move forward.
- If the home appraises low, the seller may have to lower the asking price. Or the buyer can back out.
(Side note: I’m not being sexist or exclusionary when I repeatedly use the male “he” pronoun. All of the appraisers I’ve ever known or spoken to in the past have been male. Go figure.)
What the Home Appraiser Looks for During His Visit
The home appraiser will make note of the agreed-upon purchase price. He will then review recent comparable sales in the area, to determine if the property is worth the amount the buyer has agreed to pay. These are known as “comps” for short. These are the same comps real estate agents (on both sides of the transaction) use to determine the fair market value of a particular house.
After the mortgage lender requests the home appraisal, the appraiser will visit the property in question to conduct a thorough assessment. He will examine both the interior and exterior of the home. He may also visit some of the comp houses being used for comparison, to see how they stack up to the one being purchased. If the subject property has certain value-adding features that the comparable homes do not have, he might adjust his appraisal upward. All of this can be done in 1 – 3 days.
The home appraisal process actually begins long before the appraiser shows up to look at the property. He will probably walk in the front door with a file in hand containing all kinds of market data and pricing information, including the comparable sales mentioned above. This is similar to what a real estate agent does when trying to determine the asking price, or the reasonable offer amount, for a property.
He uses sales data to understand what the local real estate market is doing, and how much homes are selling for in the area. Then he applies that insight when visiting the subject property, adjusting the value up or down based on his findings.
Appraisers have their own way of doing things. So the process can vary. They typically look at the following:
- Lot size, view, curb appeal, etc.
- Value-adding features, upgrades or additions
- Quality of construction and overall condition of the property
- Structural integrity (but with less scrutiny that a home inspector)
- Whether or not the property conforms to the neighborhood, for resale purposes
- Anything else that might add or subtract value, or make the home different from the comps
Above all else, the appraiser wants to know what the house is worth in the current, local real estate market. He will look at any aspect of the property that helps in this assessment.
Reporting Back to the Lender
Next comes the appraisal report. This is usually a standard boilerplate document with fill-in-the-blank areas for property condition, lot size, comparable sales, and whatever else the appraiser uses during the appraisal process. And, of course, he will assign an actual value to the house. This is basically an educated guess about what the home is worth in the current market.
This report goes back to the person who paid for it, which in a typical real estate scenario is the bank or mortgage company. It’s up to the lender whether or not they want to share a copy of the report with the buyer or seller. Typically they do not. But they will tell both the buyer and seller what the house appraised for and whether or not that matches the agreed-upon purchase price.
If the house appraises for less than the purchase price, the buyer’s loan might not go through. You might have to come to some kind of agreement with the seller about lowering the asking price. But that’s the subject of another article entirely.
The appraisal can cost a few hundred dollars. This cost is usually paid by the buyer, since it is their lender that requires it. Sometimes the cost can be rolled into the buyer’s closing costs. Sometimes it has to be paid on the spot, upon completion of the home appraisal process.