Everything You Should Know About Home Appraisals

Everything You Should Know About Home Appraisals

5 min read
Whitney Hutten

Whitney is a real estate investor and personal finance trainer whose vision is to launch 10,000 families on the path toward financial independence.

After purchasing her first rental in 2002 and hitting a home run, then nearly losing it all on her second deal, Whitney took control and figured out how to invest in real estate the right way. She realized that success must leave clues. So, she studied and replicated the very personal finance and wealth creation strategies the wealthy use to create financial freedom.

Today, Whitney is a partner in $500MM+ of real estate assets, including 5,000+ residential units (MF, MHP, SFR, and assisted living ) and 1,430+ self-storage. Additionally, she has flipped over $3MM in residential real estate and has a solid portfolio of commercial notes. (Don’t tell anyone though… BRRRR investing is still one of her favorite strategies—26 units and counting!)

In 2018, Whitney founded ASH Wealth and the Investor Accelerator Mastermind, where she helps you develop a clear, workable plan that gives you the results you dream of, solves your business startup or scaling issues, and drives massive progress toward your real estate and financial goals.

In her spare time, Whitney enjoys trail running, mountain biking, camping, and spending time with her family.

Whitney’s been featured on the BiggerPockets Blog, BiggerPockets Real Estate Podcast episode #340, BiggerPockets Rookie Show episode #29, BestEver Podcast, The InvestHer Show, The Investing for Good Show, Life Bridge Capital podcast, The Road to Family Freedom podcast, Frenzied to Financial Freedom podcast, Purchase to Profits podcast, and more!

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Buying your first property (or any property) can be nerve-wracking, not to mention downright expensive. While it may seem tempting to pay all cash to be competitive and skip the appraisal altogether—don’t!

Why not?

Even though you have done your homework and pulled comparables with your Realtor, the lender will want to establish their own value for lending purposes and mitigate their downside in the deal.

What Is a Home Appraisal?

A home appraisal is an unbiased professional opinion of a home’s value, based on recently sold properties nearby.

Who appraises the home?

An appraisal is conducted by an appraiser who is an independent third party contracted (often by a lender) to establish a value on a property. This gives you another set of eyes on a property and opinion of condition. The appraisal can establish an “as-is” value and a “subject-to” value in the case of a rehab.

You only need to complete an appraisal if purchasing using a loan or doing a refinance. However, it’s highly suggested that you complete an appraisal on a property even if you are purchasing in all cash to establish your after-repair value (ARV).

dictionary zoomed in on the word appraisal

The Home Appraisal Process

You personally do not have to find an appraiser (unless you are purchasing all cash). However, you do have to keep track of the process to ensure your earnest money is protected.

Step 1: As soon as you put a property under contract, contact your lender to kick off the lending process. I generally email the signed purchase agreement as soon as it is executed.

Since the appraisal can take a few weeks to complete, the lender will immediately collect payment for the appraisal and order the appraisal through a third-party appraisal service. The lender doesn’t even get to decide who the appraiser will be.

Step 2: Verify that the appraisal is scheduled, and mark on your calendar when the appointment is and when the report is due back. Remember, you have a deadline to meet in your purchase agreement, and you don’t want to lose your hard-earned earnest money just because you missed a deadline.

Pro Tips:

  1. Even though they should inherently care about the appraisal process and how well the property appraises, make sure to involve the seller in the process. Make sure they are fully aware of when the appraisal will happen so they can put their best foot forward and help you achieve the value you need to close.
  2. Have a packet ready for your appraiser to help them in the process. Include 3-5 “as-is” comparables that sold in the area in the last 6 months. If you are doing a “subject-to” appraisal, include your proposed construction budget, and 3-5 “subject-to” comparables that have sold in the last 6 months. The appraiser may or may not use your packet; however, this could help if they are unfamiliar with an area and help them better understand the level of rehab you are looking to do.

Step 3: Once you know the appraisal is complete, contact your lender to find out when the report will be back. If you need to extend your appraisal objection deadline, ask your Realtor to get a signed amend and extend agreement so you can protect your earnest money.

Step 4: Once your appraisal comes back, review it with your Realtor. If you met or exceeded the appraised value you needed, congrats! If not…

Related: Home Appraisal: 9 Tips to Get a Higher Valuation (& Appeal a Too-Low Assessment)

How Can I Boost My Home Appraisal’s Value?

If you fell short, the deal isn’t dead yet! Here are a few ways to resolve this:

Step 1: Check the report for errors. If there are errors, contact your lender to complete their appraisal objection form.

Common errors are missed bedrooms, bathrooms, garages, and square footage, or using incorrect comparables. On my personal deals, I’ve seen bedrooms missed, bathrooms excluded, and square footage not accounted for.

Step 2: Review the comparables the appraiser used to ensure they are in the right area. You can include suggested comparables with your appraisal rebuttal.

Note any comments and comparables on your lender’s appraisal rebuttal form.

Step 3: Schedule a time to speak to the appraiser to get their verbal feedback and comments.

Most importantly, remain respectful at all times during the process. The last thing you want to do is be a “bull in a china shop” and stalemate the entire rebuttal process.

Related: How to Determine Value on a Property By Adjusting Values on Comps

small white model of house on dark-stained wooden surface with magnifying glass enlarging portion of home

How to Deal With a Low Appraisal

If the appraiser raises the value, great! If the appraiser doesn’t, you still have a couple of options to close the deal.

Pro Tips:

  1. If you have done everything you can do to raise the value, it’s time to tackle the deal from the other direction. Go back to the seller and negotiate! Ask for a purchase price reduction. You can present the low appraisal to the seller to help substantiate your claim.
  2. If the seller counters or rejects your appraisal objection, then you will need to bring extra funds to close or break the purchase agreement, citing the appraisal objection contingency. As long as you do this within the appraisal contingency window, your earnest money should be protected in full. Or, you can find a different way to close the deal using a different loan product (such as a hard money loan) or finding private money.
  3. While you can’t choose your appraiser for your property, some third-party appraisal companies will allow you to request an appraiser to be removed from doing your appraisal. Therefore, it may be worthwhile to ask other investors in your farm area if they have a shortlist of appraisers they have had issues with and submit these names to your lender.

Finding an Appraiser When Purchasing in Cash

If you are purchasing all-cash for a property, the seller may ask for you to waive your appraisal contingency since you don’t have to secure a loan. I would suggest NOT to do this.

Since you are a smart investor and will keep your appraisal contingency, now you have to find the appraiser.

Pro Tips:

  1. Ask your Realtor and other investors for reputable referrals of appraisers who have experience in the property type you are purchasing (single-family, multifamily, condos, etc.).
  2. Talk to a few different appraisers. By holding multiple conversations, you will get a good sense of who is competent and capable of fairly valuing your property. Be sure to discuss their prices, training, licenses, and certifications. Also, make sure they are familiar with the neighborhood the property is in.
  3. Confirm the appraiser’s license or certification with your state registry.

Pulling It All Together

The appraisal process is a vital step in your due diligence. While it may seem like a somewhat annoying and lengthy part of the process to have a third party establish value, remember this is also part of your pre-purchase insurance policy and a possible lending requirement. Moreover, it can help safeguard you from potentially grossly overpaying on an asset.

What are your best strategies for navigating an appraisal?

Share your tips in the comments.