Home Appraisal Cost, Uses, & What to Expect in 2023

Whether you are selling your home or refinancing, it’s likely that the success of the transaction will rely on a home appraisal. Appraisals are an essential part of pricing and can be instrumental in helping you get the best sale price for your home when used properly.

However, many people don’t understand how appraisals work, who orders them, or how much they cost. We’ll cover each of those and discuss best practices to ensure that you are maximizing your chances of success with your home’s appraisal in 2023. Here’s all you need to know about home appraisals!

What is a home appraisal?

A home appraisal is a process in which a licensed appraiser analyzes your property and determines the fair market value of your home. People typically use an appraisal to validate the value of a home or property for real estate transactions between buyers and sellers, or if homeowners are refinancing their mortgage. 

A homeowner may also order an appraisal if they are attempting to have mortgage insurance removed from their loan. However they must have reached a 20% equity threshold or they are contesting their tax value with the county.

What does a home appraisal consist of?

A home appraisal contains several sections that include a variety of information about the subject property and the surrounding area.

1. Property Information: The first section of a home appraisal includes information about the property itself. Examples include: the square footage, # of bedrooms, # of bathrooms, type of construction materials, type of roof, etc. It also includes information about the MLS listing including the details of the contract. 
2. Comparable sales:  For residential properties, appraisers rely on the sales comparison approach to determine their value. They source recent sales of like-kind homes in comparable areas (ideally within the same neighborhood) and create a detailed list including any variances from their target property – such as square footage or upgraded features. By finding these discrepancies between subject and comparables, they adjust for differences so that no stone is left unturned when it comes to calculating an estimation of worth! 
   • Other appraisal methods besides the sales comparison approach include the cost approach and the income approach.
     • The Cost Approach is based on the total cost of the land plus the cost the total cost of construction to build that structure new minus depreciation. 
     • The Income Approach is commonly used in commercial real estate. This approach creates a formula to determine the properties value based on the investment income the property will produce.
3. Market Conditions Addendum: This addendum provides an overview of the current state of the market. It typically outlines whether the market is improving, stable or declining. It also displays the number of sales that have happened in different segments of time over the last 12 months. 
4. Home Measurement: The appraisal includes a diagram of the home as well as a measurement of the live-able square footage. This confirms the numbers listed in the MLS. Since a home’s value is very dependent on the size of the home, this is an important piece of validation.
5. Property Photos and Map of Comparables: In the final sections of the appraisal, there will be photos of the subject property as well as a map showing where the comparables used in the appraisal are located. This validates that the comps are geographically close to the subject property.

How is an Appraiser Chosen?

There is a common misconception that the buyer in a transaction has the option of choosing who does the appraisal. In reality, appraisals have become a highly regulated process. This is in order to protect both buyer and sellers from collusion or fraud. 

The appraisal itself serves a few different purposes. First, the lender must verify the value of the property since it’s the collateral for their loan. Then, the buyer will want to validate whether or not they are paying the fair market value of the home.  

The lender is the one that handles ordering the appraisal, typically through an appraisal management system. The listing agent or the seller are then able to communicate with the appraiser, in order to provide information about the property that will help to ensure the appraiser has the information they need to submit an accurate report.

What should a home seller provide to an appraiser? 

It’s in the best interest of the home seller to maximize their chances of the appraisal meeting or exceeding the contract price. 

Some information the homeowner can provide that can help their chances:

• Comparable sales:  When it comes to appraising your home, the most important tool in an appraiser’s arsenal is market data. To get a truly accurate assessment of value, you should be on the lookout for sold prices from similar properties close by – active and pending sales won’t do because they don’t tell us what people are actually paying! Keep that in mind when considering how much your house might be worth.
• Upgrades, improvements & new features: Have you updated your home lately? Investing in upgrades and features can add real value to your property. Ensure that the appraiser is aware of these so that they are accounted for correctly when calculating a home’s value!
• Neighborhood or community information: Neighborhood or community information may help the appraiser determine which comparable sales to include on the report. For example, if you are in a neighborhood and there are sections or pockets that sell for higher or lower values, that information is important and can affect the appraised value.

The Bottom Line

Home appraisals are important for anyone looking to sell their home. They provide an accurate estimate of the worth of your home so you can list it at a fair price. You should know what goes into a home appraisal, so you can be prepared and have reasonable expectations. ListingSpark offers services to help you with all aspects of selling your home, from start to finish. Visit our website today to learn more about how we can help you get through the home selling process stress-free!