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A home appraisal is conducted by a licensed professional to determine what your home is worth before you put it on the market and sell it.

“An appraisal is a qualified professional’s estimation and opinion of the value of a home,” says Jackie Boies, a senior director of housing and bankruptcy services at Money Management International, a Sugar Land, Texas-based non-profit debt counseling organization.

How does an appraisal work?

The appraiser looks at a number of factors, including comparable homes within the local market, location, age and condition of the home, structural construction and materials, size of the home and square footage, updates and improvements, style, curb appeal, the economy and local market.

A real estate appraisal is an independent, objective estimate of a property’s value, says Bruce McClary, spokesperson for the National Foundation for Credit Counseling, a Washington, D.C.-based non-profit organization.

“All 50 states require that the person conducting the appraisal is licensed or certified,” he says. “Federal regulations require appraisers to be unbiased toward the buyer or seller and to have no interest in the transaction.”

Most appraisers use Fannie Mae’s Uniform Residential Appraisal Report form as their guide for developing the appraisal, Boies says.

An appraiser will conduct an on-site visual inspection of the house that is being appraised and look at the recent values in the area.

“Based on their findings, they will adjust upward or downward from the comparable sales known as comps,” McClary says. “For instance, if the house in question is similar to the average price of the sold comps, but it has a much larger lot or nicer features of some kind, the appraised value might be adjusted upward.”

Mortgage lenders  require appraisals for home purchases and also when a homeowner refinances a mortgage.

“There are rare circumstances when refinancing a mortgage would not require a property appraisal,” he says.

Why is an appraisal needed?

An appraisal benefits both the homeowner and potential buyer.

“An appraisal is always in the best interest of the buyer as it will assess the value of the property and help the buyer have confidence in the purchase price of the home,” Boies says.

A property appraisal is also important for the homeowner or potential buyer because it establishes the parameters of the mortgage loan.

“Once the value of the home is established through the appraisal, the lender can make an offer based on the available loan-to-value ratio,” McClary says. “Property appraisals also help determine the cost of the loan. A well-maintained property can lead to a loan with a more favorable interest rate than one that is in disrepair because of the direct effect on loan-to-value ratio.”

How much do appraisals cost?

A typical, single-family home appraisal will range from $300 to $450 and can vary depending on a number of factors, including the size of the home, the value of the property, condition of the property and the level of detail involved in the appraisal. A large home or property can impact the cost of the appraisal. In larger cities or areas of high labor costs, the range may be significantly higher of $500 to $800, Boies says.

There are other factors that impact the cost of an appraisal, such as unique locations, unusual features, damage or repair needs and lack of comparable homes, she says.

A number of items can inflate the cost of an appraisal, such as larger total square footage or a lack of similar properties nearby.

“If a house is much larger than average, it may cost more for an appraiser to measure and assess the total area,” Boies says. “Appraisers use the prices of similar properties near the home to base their estimate on.  If there aren’t similar properties or the home has unique characteristics, making comparative pricing more difficult, the appraiser may charge more as it will take more time to evaluate.”

Expect to pay more for an appraisal for a home with extensive damages and repairs because it will require additional effort by the appraiser to assess it.

Seasonal conditions may also impact the cost if there are circumstances that make it “challenging to access the property for physical inspection at certain times of the year,” McClary says.

A professional appraiser’s fees are regulated in part by the Dodd–Frank Wall Street Reform and Consumer Protection Act and must be reasonable and customary for the geographic market.

“These assessments might be based on neutral, third-party information obtained from independent studies, surveys or government fee schedules,” Boies says.

Why are appraisers important?

Licensed and qualified appraisers offer an objective review of the condition and value of a property that will be used as collateral, McClary says.

“The accuracy of their work ensures that the loan is packaged appropriately,” he says.

A professional appraiser will ensure that the lender is financing an acceptable amount of money to buy the home as well as determining that the seller has set an acceptable price for the home. This process ensures that buyer is not overpaying, Boies says.

How do you find an appraiser?

The government maintains a national registry at http://www.asc.gov where you can check to make sure that the person selected for an appraisal has the right credentials.

Since the appraiser’s fee is paid by the home buyer, the lender chooses one to make sure the estimate is unbiased, Boies says.

“Federal regulations prohibit the buyer or seller from selecting the appraiser,” she says.  “Most lenders will request an appraiser from a third party who randomly assigns the work from a roster of licensed appraisers.”

The lender is also prohibited from having a relationship with the appraiser so that there is a fair, unbiased valuation of the home, Boies says.

While a homebuyer can hire an independent appraiser, the valuation of the home would be unofficial. A better use of the money should be spent on a home inspection, she says.

The appraiser focuses on determining the value compared to similar homes in the area, plus the condition of the actual property.

The appraiser’s goal is not to check that everything in the home works properly unless there are obvious signs of damage or issues.

“For example, if there is no sign of leaking from the dishwasher, it is assumed to work as expected,” Boies says. “By contrast, a home inspector will take a close look for issues and concerns the buyer should know about. The inspector will run the dishwasher to confirm there are no leaks and it cycles through the stages as expected.”

Sellers can positively impact an appraisal by cleaning your home and making minor repairs.

“Appraisers are human and influenced by what they see and smell,” Boies says.

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