Mortgage 101: Everything about Home Appraisals

by Emily RicheyMarch 28, 2016

What’s Your Home Worth?

Some types of goods are easy to compare. Televisions, for example, have a specific set of features, and while the technical specifications don’t always tell the whole story, they’re a pretty good indication of a particular television set’s quality and value. Homes are a different beast, though, because literally every home is different. Even two very similar homes in the same neighborhood may be valued quite differently, depending on condition, amenities, upgrades, layout, and even the view from the front porch. Want to know the current value of your home? You can probably make an educated guess, but if you really want an accurate number you may be better off consulting an expert, which is where a professional home appraiser comes in.
A Nice Kitchen

Why Get an Appraisal on Your Home?

When selling a home you aren’t actually legally required to have it appraised. You’re free to base your price on your real estate agent’s competitive market analysis. If you’d like, you can even set the price higher or lower than the value estimated by your realtor. So as a seller, why would you want to have the home appraised? Well, most of your prospective buyers will be taking out a mortgage to purchase the home you’re selling and mortgage lenders typically require appraisals to avoid lending more than a home is worth. If the buyer should default, the lender doesn’t want to be stuck with a property that is worth less than what is owed on the mortgage. When selling a home without having it appraised, you run the risk of losing a sale if the lender’s appraiser evaluates the house at a figure lower than your asking price.
Homes being inspected.

The Basics of Home Appraisals

So what does an appraiser do, exactly? Basically, he or she assigns a monetary value to the right of ownership on a piece of property. Homes are one of the most commonly appraised items, but appraisers may also be called upon to assess the value of a commercial space, classic automobile, or collectible antique. Appraisals are based partially on the features of the property itself, but market conditions also come into play. All else being equal, a home will be worth much more in a particularly desirable real estate market than it would in one where home prices are stagnant.

Appraisal Methods

Appraisers use a few different methods to determine the value of a home or other property. Let’s take a look at these methods and see how they work.

First, there’s the cost approach, which bases the value of the home on what it would cost to build it in the current market. The figure is then adjusted for functional and economic obsolescence and deterioration. Finally, the cost of reproducing the home is added to the estimated value of the land, if it were unimproved.

The second technique used by appraisers is the comparison method, in which the property is compared to similar properties in the area that have recently sold.

The third appraisal approach is the income method. It’s seldom used to valuate residential properties, but may be relied upon to put a price on properties that have been zoned for mixed residential and commercial use, or multi-family dwellings being sold as investment properties.

Costs Associated With Home Appraisals

The costs of having a home appraised vary, depending on several factors. A thorough appraisal tends to be more costly than one in which the appraiser only takes a cursory glance at the property. For in-depth appraisals, the cost tends to increase proportionately with the value of the home and the land on which it sits. The availability of qualified appraisers can also affect the service cost, as those located in areas where there is little competition are typically able to charge more for their expertise.
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Make Your Appraiser’s Job Easier

If you want to make the appraisal process go smoothly, try to make it easier on your appraiser. During the course of appraising a property, the appraiser will likely need to know the following information:

  • Why the property is being appraised and the deadline by which the work needs to be completed. If the property is for sale, the asking price and name of the listing agent will be pertinent information.
  • Does the property include furniture or appliances? If so, those will affect the appraised value, and the appraiser should be made aware of any extra items included in the sale.
  • Deed surveys, purchase agreements, tax statements, mortgage information, and (if the property is income-producing) the leases and profit and loss statements for the past year should all be made available to the appraiser at the start of the process.

Best of luck to you before buying or selling a home!


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About The Author
Emily Richey
Emily is a Homes.com Content Marketing Assistant and a new home owner! When not coordinating content for Homes, she stays busy cooking in her new kitchen, reading interior design magazines, running with her pup and husband, exploring new places, and entertaining.
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