Whether you’re purchasing a home or refinancing your existing mortgage, it’s important to understand the role of the home appraisal and how it can impact the outcome of your mortgage application. This article will explain how home appraisals work, including a step-by-step process. Once you’ve finished reading, you’ll understand the costs involved, how to prepare for an appraisal, and your options should your home’s value come in lower than expected. 

How Home Appraisals Work 

A home appraisal is an independent valuation of what a home is worth. The reason an appraisal is done when a mortgage is being requested is simple: The lender needs to ensure that the property being secured has sufficient market value to cover the loan that’s being advanced against it.

In addition to property value, an appraisal will consider marketability factors, such as environmental hazards and accessibility. For example, if a home is built on an island without road access or has a known environmental hazard nearby, it may not meet the guidelines of the lender, regardless of the home’s perceived value. The home appraiser is responsible for taking all these things into account for the lender.

When Do I Need A House Appraisal?

You’ll need to obtain a home appraisal whenever you’re applying for a mortgage to purchase or refinance a home. The appraisal forms part of the approval condition and must be completed prior to the mortgage being finalized.

How Much Does A Home Appraisal Cost?

Lenders almost always pass along the cost of a home appraisal to the mortgagor. The cost can vary, but the standard charge is in the neighbourhood of $300 for a personal mortgage. If the appraisal is a drive-by or is done through an automated valuation process, the price may be reduced.

Steps To Complete A Home Appraisal

The following steps represent the standard home appraisal procedure when completing a mortgage application. The process may vary depending on the lender, but it gives you a good idea of the order in which things happen.

  1. The borrower works with the lender to complete a mortgage application.
  1. The application is approved with conditions, one of them being a satisfactory home appraisal. In the case of an automated valuation, the process might be instant.
  1. If a drive-by or full appraisal is required, the lender will often look to satisfy other conditions first, such as income confirmation, prior to ordering the appraisal.
  1. The lender orders the appraisal from their list of preferred appraisers. Keep in mind, the appraiser is independent and is not employed by the bank.
  1. The appraiser arranges an appointment with the homeowner to view the home. This can usually be arranged within 24 – 48 hours.
  1. After the appraiser has visited the home, they will compile the information they’ve collected – which includes analysing market comparables – and prepare a report for the mortgage lender.
  1. The lender receives the completed report and shares the results with the client.
  1. If the appraised value is sufficient, the mortgage approval can be finalized, assuming all other conditions are met.

Can I Get A Copy Of The Appraisal Report? 

People often wonder if they’re entitled to a copy of the appraisal report. After all, they’re the ones who had to cough up the $300 to have it completed. The answer is that it’s a matter of privacy, so it depends. Typically, you must own the home at the time of the appraisal to be entitled to a copy. This would be the case if you’re refinancing a mortgage on your existing home.

When you’re buying a new home, chances are it’s not owned by you at the time the appraisal is completed, therefore you wouldn’t have the right to a copy of the appraisal. Of course, anyone can order their own home appraisal at any time directly through the appraisal company. An appraisal doesn’t have to be limited to when you’re applying for a mortgage.

Three Types Of Home Appraisals

While mortgage lenders will always complete a valuation process, not all home appraisals require the appraiser to visit the home and inspect its interior. In fact, the property valuation is often arrived at via an automated process.

Automated Appraisal

Many lenders use an automated appraisal system to establish a value for a home. This is more common in urban areas with well-established housing values and plenty of market comparables. During the mortgage application, the lender gathers the property details, combining it with what’s already available online.

Drive-By Appraisal

If the lender is fairly confident of a home’s value, perhaps because it’s located in a well-populated area with plenty of comparables, they may order a drive-by appraisal. This usually comes at a slightly lower cost and involves the appraiser driving past the property without stopping to go inside. The appraiser makes a general visual assessment of the home to support the data that they already have.

Full Appraisal

A full appraisal occurs when the appraiser visits the home in person and examines not only the exterior but the interior of the home. During their visit, they may be required to take some pictures and measurements. An appraisal doesn’t usually take very long. Appraisers have an experienced eye, and in many cases, they’re armed with a wealth of online data and can assess a property’s general condition fairly quickly during a visit.

Things A Home Appraiser Looks For

Here is a list of some of the things a home appraiser is looking for when they visit a property. This includes both external and internal features.

Outside The Home

  • Lot size
  • Garage/storage facilities
  • Property zoning classification
  • Construction type (detached, semi-detached, condo)
  • Market comparables of similar properties that have recently sold
  • Characteristics of the overall community (urban, nonurban, rural)

Inside The Home

  • Size of home (square footage)
  • Number of bedrooms
  • Number and type of bathrooms
  • Type of foundation
  • Renovations/upgrades that have been completed

Home Appraisal Myths

Some people believe that if they spend a lot of time cleaning a house before the appraiser arrives, it’ll have a positive impact on the appraised value. In fact, it’s easy to find articles that will give you advice on how to “stage” your home for an appraiser.

The truth is, a professional home appraiser is able to see past the surface to determine a home’s true value. They don’t put much stock in how clean a house is. They do want to see that a house has been properly maintained, however. That’s more likely to be a factor in the appraised value.

What If I’m Not Happy With My Home’s Appraised Value?

This policy may vary between lenders, but if you’re not happy with your home’s appraised value, you may have the option to request a second opinion from a separate appraiser. This may or may not result in a higher market value being assigned. The risk you may face is having to pay the cost of both appraisals if the second valuation is no higher than the first.

If you’re buying a home and the appraised value comes in low, you may want to reconsider whether you should proceed with the purchase, even if there’s still enough equity to qualify for the mortgage. It could be a warning sign that the price you’re paying is too high.

Final Thoughts On Home Appraisals

When you’re applying for a mortgage, one of the things you’ll want to be prepared for is the home appraisal. It may not always require an in-person review, but mortgage lenders will always take the necessary steps to assess the value of the home they’re financing.

When the appraiser is in your home, it’s important to let them do their job. There’s probably not much you can tell them that will tip the scales further in your favour. Remember that these are professionals who know what to look for. If they do have questions, they’ll ask. The best thing you can do is ensure your home is well maintained. If so, there’s a good chance you’ll get the value you’re looking for.

Tom Drake is an authority in Canadian personal finance. He is a financial analyst and has been writing about personal finance since 2009 at the award-winning MapleMoney. His work has appeared in MintLife, Canadian MoneySaver, and U.S. News & World Report, and has been quoted in The Globe and Mail, Yahoo Finance, and Financial Post.