Understanding Home Appraisals: What Buyers Need to Know
If you’re financing your home purchase, a home appraisal is likely to be one of the key steps before closing. Here’s a breakdown of what you should know about the appraisal process.
What Is an Appraisal?
An appraisal is an unbiased professional opinion of a home’s market value conducted by a licensed or certified residential appraiser. The purpose is to help lenders ensure the purchase price aligns with the property’s value. Appraisers are independent third parties the lender hires to provide a fair and accurate valuation. They do not represent the buyer or seller. Appraisers who are also REALTORS® adhere to both professional standards and the REALTOR® Code of Ethics, adding an extra layer of trust to the process.
Do You Need an Appraisal?
If you use a mortgage to purchase your home, your lender will almost always require an appraisal. This helps establish the loan-to-value (LTV) ratio—the percentage of the home’s price that you’re borrowing. Generally, lenders aim for an LTV ratio of 80% or lower to minimize risk. If you’re buying with cash, an appraisal isn’t required, but it can still provide peace of mind, ensuring you’re not overpaying for the property.
What Does an Appraiser Look For?
Appraisers evaluate the property by examining the following:
• Recent comparable sales (or “comps”) from local market databases like the Multiple Listing Service (MLS).
• The home’s condition, size, and location.
• Amenities, upgrades, and recent renovations.
All findings must be supported by evidence and conducted without bias.
Are Appraisals Conducted In Person?
Many appraisals include an in-person visit, but there are alternatives. Hybrid or desktop appraisals involve remote data collection and insights from trusted third parties. Your lender will determine the appropriate appraisal type for your transaction.
Can Your Agent Talk to the Appraiser?
Your agent can reach out to the appraiser to provide relevant property information. However, it’s unethical and illegal to attempt to influence the valuation. Appraisers are bound to confidentiality and cannot share information outside their professional scope.
What Happens If the Appraised Value Differs From the Purchase Price?
If the appraisal is lower than the purchase price, it could affect your mortgage approval. Including an appraisal contingency in your purchase agreement allows for renegotiation or cancellation if the appraised value doesn’t align with the agreed price. This step can protect both buyers and sellers from potential financial surprises.
Will You Receive a Copy of the Appraisal?
Yes, the Federal Equal Credit Opportunity Act ensures that your lender provides you with a free copy of the appraisal report. However, this does not apply if an appraisal waiver is granted.
What If You Disagree With the Appraisal?
If you believe the appraiser missed key details or comparables, you can request a reconsideration of value (ROV). Your lender will guide you through the process, and your agent can help you gather supporting information. If you suspect bias or inaccuracies, you can file a complaint with state or federal regulators through the Appraisal Complaint National Hotline.
Final Thoughts
Home appraisals are a critical step in ensuring a fair and smooth transaction.
While processes can vary by state and local law, your real estate professional can guide you every step of the way.
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