If you’re financing your home purchase, one critical step between signing the contract and closing the deal is the home appraisal. Here’s what you need to know about this essential process:
What is an Appraisal?
An appraisal is an unbiased assessment of a home’s market value conducted by a licensed or certified residential appraiser. This professional judgment ensures that the agreed-upon purchase price aligns with the property’s value, protecting both you and your lender. Appraisers are independent third parties hired by the lender, and they are not influenced by either the buyer or the seller. They follow a strict set of standards, and appraisers who are REALTORS® are also bound by the REALTOR® Code of Ethics.
Do I Need an Appraisal?
If you’re using a mortgage to finance your home, your lender will typically require an appraisal to determine the loan-to-value (LTV) ratio—the percentage of the home's price that you’ll borrow. Lenders usually prefer an LTV ratio of 80% or less, as higher ratios pose greater financial risks. If you’re paying in cash, an appraisal is optional but still valuable for confirming the property’s worth. In some cases, lenders or buyers may waive the appraisal requirement to strengthen their offer or expedite the process.
What Factors Do Appraisers Consider?
Appraisers use various approaches to determine a property’s value, often relying on comparables—recently sold properties with similar features. They evaluate:
- The home’s condition
- Renovations or improvements
- Amenities
- Location
- Size
Appraisers also reference databases like Multiple Listing Services (MLS) to ensure their valuation is accurate, independent, and evidence-based.
Do Appraisals Always Happen In-Person?
Not necessarily. While traditional appraisals include an in-person visit, hybrid and desktop appraisals are becoming more common. These methods involve remote data collection and consultations with reliable third-party sources, such as agents familiar with comparable properties in the area.
Can My Agent Communicate with the Appraiser?
Yes, your agent can communicate with the appraiser and share relevant property information. However, it is illegal and unethical for anyone to pressure or attempt to influence the appraiser’s valuation. Confidential information must also remain protected.
What Happens if the Appraisal Doesn’t Match the Purchase Price?
A discrepancy between the appraised value and purchase price can impact your mortgage. If the appraised value is lower, you might need to renegotiate the purchase price or increase your down payment. Including an appraisal contingency in your contract—a condition that the deal proceeds only if the appraisal aligns with the purchase price—can provide additional protection.
Will I Get a Copy of the Appraisal?
Yes, the Federal Equal Credit Opportunity Act mandates that lenders provide a free copy of the appraisal report. However, if your lender grants an appraisal waiver, they are not required to provide a valuation report.
Can I Dispute the Appraisal?
If you believe the appraiser overlooked critical information, you can request a Reconsideration of Value (ROV). Your lender will guide you on the ROV process, and your agent can assist in gathering supporting evidence. For concerns about bias or inaccuracies, you can file a report through state and federal regulatory agencies or local fair housing organizations.
Consult the Experts
Practices vary by state and local laws. Consult your REALTOR® and an attorney for specific guidance in your area. For more resources, visit facts.realtor.
NCJAR is here to support you throughout your home-buying journey. Contact us with any questions about appraisals or the purchasing process!
