Eager to refinance your mortgage? Chances are your lender will require an appraisal to gauge the value of your home. While major home improvements aren’t required (or recommended), there are steps you can take to ensure an accurate appraisal and a successful refinance.
Why is an appraisal needed to refinance?
Property values can fluctuate, so many lenders will want to get a current opinion of your home’s value in order for you to refinance. It’s normal to expect your lender to require an appraisal to accomplish that, according to John Brenan, chief appraiser at Clear Capital, a real estate valuation provider based in Reno, Nevada.
So, even though you’ll pay for the appraisal — typically a few hundred dollars — it’s actually being performed for the lender’s benefit.
“While most borrowers have the best intentions to repay their loans, things sometimes happen that prevent that,” Brenan explains. “Therefore, the lender needs to know that, in a worst-case scenario, your property is worth enough to cover the amount of money being loaned.”
Although appraisals are commonly required when refinancing a mortgage, they aren’t always, says Steven Ho, senior loan officer and mortgage lending expert at Quontic, a digital bank headquartered in New York City.
“On some occasions, a refinance where only the existing loan is being refinanced without taking cash out at closing, and when the owner has plenty of equity accrued, will not require an appraisal at all,” Ho says. “This is not guaranteed, however. Conventional loans are more likely to not require an appraisal than non-conventional, government-backed loans.”
How to prepare for a refinance appraisal
If an appraisal is required, your lender will order one when you apply to refinance. The appraiser will schedule a visit to your home, at which time they’ll briefly inspect your property. Then, they’ll complete an appraisal report containing information about your home, including its value, and deliver the report to you and your lender.
“When the appraiser arrives, they’ll want to walk through your home to observe the quality, condition, type and number of rooms, appliances, fixtures, floor coverings, countertops and more,” Brenan says. “They’ll take note of special features, any remodeling or updating, or if any obvious repairs are needed. He or she may also take photos and measurements of your home, which will be used in their report.”
The appraisal visit generally lasts “only about 15 minutes,” according to Bill Samuel, owner of Blue Ladder Development, an Elmhurst, Illinois-based real estate investment firm. “After the on-site visit, the appraiser typically spends a couple more hours compiling data and comparable sales to complete their valuation report.”
Appraisals during the pandemic
Due to the coronavirus pandemic, an appraiser may conduct an evaluation differently than usual. If they’re allowed to enter your home (depending on local restrictions), the appraiser will likely wear a mask and gloves, and either maintain social distancing from any occupants present or require that everyone else briefly vacate the home.
Alternatively, many lenders lately are accepting either drive-by appraisals, whereby the appraiser only inspects the home’s exterior without going inside, or desktop appraisals in which all of their research is performed remotely with no in-person visit required.
The appraiser or lender will inform you ahead of time as to which approach they’ll take.
Regardless of how the appraisal is completed, there are several steps you can take to lessen the odds of a low valuation:
- Thoroughly clean and declutter your home’s interior. “Have your home in show-ready condition before the appraiser arrives, just as you would if you were going to sell the property,” Samuel suggests.
- Tidy up your yard and exterior. “Make sure the lawn is mowed, bushes and trees trimmed, the yard is clean, there are no loose siding boards, gutters or shingles and curb appeal is high,” Ho says. Also, pressure-wash your driveway and exterior.
- Make minor improvements if necessary. “Add a fresh coat of paint to worn walls and surfaces, have your carpets professionally cleaned, replace run-down appliances or unsightly furniture, repair or replace things like a broken window or door and upgrade your window treatments,” advises Atlanta-based real estate attorney, investor and Realtor Bruce Ailion.
- Avoid the urge to undergo costly major remodeling, but aim to make a favorable impression. “Appraisers aren’t supposed to care if a house isn’t modernized, but it’s to the homeowner’s advantage if the home is appealing,” Brenan says.
- Turn on all your lights and open all doors just before the appraiser arrives. This can make your home look more inviting.
- Be home and be friendly and accommodating when the appraiser arrives. Appraisers are people just like us who enjoy human interaction.
- Present the appraiser with a list of any special features or improvements you’ve made in the past few years to your home — especially details about major remodeling projects completed, a new roof, windows or HVAC system, updated appliances and added insulation. “Don’t try to unduly influence or pressure the appraiser,” Brenan says, “but provide copies of any documentation for work performed on the home, which the appraiser should welcome.”
- Consider providing the appraiser with fresh comparables in the form of information you gather about recent sales or listings in your neighborhood. “You may have information about a particular sale that’s not readily apparent or obvious to the appraiser,” Brenan says. “But don’t be pushy about offering these details and printouts, or try to steer an appraiser to a desired value.”
What if the appraisal comes in low?
Bad news: The appraiser files the report and you learn that your home is worth less than you thought. What can you do?
“First, read their report carefully and confirm all the information about your home is accurate,” Ho recommends. “Appraisers are human, and it’s possible they entered the wrong data.”
You might consider contesting the report or asking for a second opinion. For the former, “you’ll need to document some evidence why your home should be worth more,” Ho says. “Perhaps there were recent homes sold privately or other comparables not considered that a local Realtor can help you find proof of. A second opinion would mean paying for another appraisal by a different professional.”
Ailion cautions, however, that it isn’t easy to successfully appeal a valuation.
“As a last resort, you can shop for a refinance from a different lender and start the process all over again,” Ailion says.