01/15/2025
Understanding Home Appraisals
By Danny Benedetto, Benedetto Real Estate
If you’re financing a home purchase, a home appraisal will likely be a required step between signing the contract and closing the deal. Here’s what you need to know:
What is an appraisal?
An appraisal is a professional opinion on a home’s market value, ensuring the purchase price aligns with the property’s worth. Licensed or certified residential appraisers—independent third parties hired by lenders—conduct the appraisal to provide an unbiased valuation. While appraisers follow a uniform set of standards, those who are also REALTORS® adhere to the REALTOR® Code of Ethics, offering an added layer of professionalism.
Do I need an appraisal?
If you’re taking out a mortgage, your lender will usually require an appraisal to calculate the loan-to-value (LTV) ratio. Lenders typically prefer an LTV ratio of 80% or less. If you’re paying cash, an appraisal isn’t mandatory but can still provide peace of mind to ensure you’re not overpaying. In some cases, lenders or buyers may waive the appraisal requirement to strengthen an offer.
What does an appraiser evaluate?
Appraisers examine factors like the property’s condition, location, size, amenities, and recent upgrades. They also analyze “comparables” (similar recently sold properties) from databases like the Multiple Listing Service (MLS). Regardless of the method used, appraisals must be unbiased, evidence-based, and defensible.
Are appraisals conducted in person?
Appraisals may include an in-person visit but can also be conducted remotely. Hybrid and desktop appraisals use collected data and insights from reliable third-party sources, such as real estate agents familiar with comparable properties.
Can my agent communicate with the appraiser?
Yes. Agents and others involved in the transaction can provide relevant property information to the appraiser. However, it’s unethical and unlawful to attempt to influence the appraiser’s valuation. Appraisers are also bound by confidentiality rules.
What if the appraised value differs from the purchase price?
If the appraisal value doesn’t match the purchase price, it could affect your mortgage loan amount. You can include an appraisal contingency in your purchase agreement, which allows you to renegotiate or walk away if the appraised value falls short.
Will I receive a copy of the appraisal?
Yes. Under the Federal Equal Credit Opportunity Act, lenders must provide you with a free copy of the appraisal report once completed. If your lender waives the appraisal requirement, they are not obligated to provide a valuation report.
Can I dispute an appraisal?
If you believe the appraiser missed crucial information, you can request a reconsideration of value (ROV) through your lender. Your agent can assist in gathering the necessary evidence for the ROV. If you suspect bias or inaccuracy, you can file a report with your state’s regulatory agency or the Appraisal Subcommittee’s Complaint Hotline.
