All About the Home Appraisal

All About the Home Appraisal

When you buy or sell a house, getting a home appraisal is an important part of the process. The loan amount may be approved. The offer may be accepted. The home inspection may be free of insurmountable problems. However, if the bank doesn’t like the appraisal, the loan could be in trouble.

 New Home

What is a home appraisal?

The appraisal may seem mysterious, but it’s not — not really. It’s an estimate of the property’s value that the bank requires to ensure the bank will be able to recoup its losses if the buyer goes into foreclosure. The bank doesn’t want to lend $300,000 for a property that only is worth $75,000 because then it will be out $225,000 if the buyer defaults on the mortgage. Therefore, to secure a loan, the property must be appraised at or above the amount of the loan.

What factors are important?

The home appraisal determines the home’s value based on its physical condition. The age of the house, its overall condition, its square footage, the number of bedrooms and bathrooms, lot size and location all factor into the appraisal. Market trends and sales of similar properties nearby also play a role. The furniture, décor and paint choices have no bearing on the home appraisal.

Home Appraisal

How does this work?

The lender will choose an appraiser. The appraiser may have to certify that they have experience evaluating similar homes in the same area — this is required for Fannie Mae loans. Federal regulations stipulate the appraiser must be objective and can have no interest in the transaction.

The buyer pays for the appraisal. Usually it costs $300 to $400.

The lender must give the buyer a copy of the home appraisal for review. The buyer and real estate agent should then review the appraisal to make sure it’s accurate.

What if the appraisal is lower than the sale price?

If the home offer is contingent on the appraisal, the buyer can walk away from the entire deal. However, if the buyer still wants the home, there are a few options. The buyer can pay for a second home appraisal or challenge the original appraisal. The homebuyer can pay for the difference between the appraised value and purchase price or ask the seller to finance the difference. The buyer and seller also can renegotiate the deal.

Home Appraisal

What can sellers do to get the best appraisal?

If you are a seller, you can have some influence on the home appraisal.

Make sure your home is in good repair — you want it to look as clean and as updated as possible. Repair plaster cracks, holes in the walls and water stains. Make sure carpets are clean and that pet odors don’t linger. Fix broken windows and leaky faucets. Clean up your yard, tidy the garden and trim bushes and trees.

One last thing

The appraisal is only one aspect of the home-selling and home-buying process. It may seem intimidating, but the more your understand it, the less stressful it will be. To learn more about appraisals, you can check out this article from Zillow or this article from How Stuff Works.


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About the Author

David Haug is a Madison WI real estate agent. He is passionate about helping clients, customers, and friends succeed in residential real estate. He is also a raging Badger fan. #OnWisconsin Baby! Connect with David on LinkedIn: