Whether you are a homebuyer or seller, you have a vested interest in the appraisal process. As the buyer, you will be paying for the appraisal, $337 is the average cost, on behalf of your lender. Your primary concern is that the appraisal accurately reflects, without artificial inflation, the true value of the home you hope to buy. If you are the seller, you also want an accurate, but not understated, valuation.

Both of you should know that the appraiser is independent by law, and their job is to ensure that the lender gets the most accurate valuation on the home that is being appraised.

Mostly, however, buyers and sellers want to know what gets checked and what doesn’t. This article will help answer that question and many more when it comes to the appraisal process.

Key Takeaways

  • The appraisal process depends in large part on the type of loan being sought.
  • Appraisers are independent third parties to the homebuying experience no matter who foots the bill
  • An appraisal places value, and an inspection determines condition.
  • Knowing what to expect—whether you are buying or selling—can make your approach to the process more efficient.
  • Your knowledge about the requirements of different loan types can influence the type of loan you seek.

Timing of the Appraisal

Normally, when a home is being sold, the appraisal, ordered by the buyer’s lender, takes place after the seller accepts the buyer’s offer. If you are refinancing your own home, the appraisal is part of loan processing and takes place before final approval.

Expect the on-site part of the appraisal to take anywhere from 20 minutes to a couple of hours, depending on the size of your property. During this time the appraiser will take photos of living areas to document the condition of the home. Afterward, the appraiser will create a written report to submit to the lender. This process normally takes three to five days.

If you have an FHA loan and are doing a streamline refinance, typically an appraisal isn’t needed.

The Basic Appraisal Process

First, the appraiser will conduct research to learn the selling price of a minimum of three properties in the area that are similar in size and features to the house being appraised. This process is called getting “comparables” or, in industry parlance, “comps.”

The appraiser then conducts an on-site visit at the house being appraised, where they will use lender- and underwriter-approved forms depending on the specific type of loan being sought: conventional, Federal Housing Administration (FHA), United States Department of Agriculture (USDA), or U.S. Department of Veterans Affairs (VA).

Something that may surprise homeowners is the fact that your housekeeping skills aren’t a major concern to appraisers. Certified residential appraiser Gynell Vestell puts it this way, saying, “The reality is that the appraisers are trained to see beyond an unmade bed, dishes in the sink, unfolded laundry, or the kid’s toys on the floor.”

Conventional Loan Appraisal Checklist

For conventional loans, lenders expect the appraiser to check the following: 

  • Condition of the home, with specific focus on damage
  • Condition of appliances, furnace, air conditioning, water heater, and other mechanicals
  • Size of the home and property
  • Quality of landscaping
  • Quality of roofing and foundation
  • Number of rooms, bedrooms, closets, bathrooms, and windows
  • Quality of lighting and plumbing
  • Number of fireplaces
  • Condition of any swimming pool or sprinkler system
  • Quality of the basement, including whether it is finished or unfinished
  • Details such as granite countertops, hardwood floors, and appliances
  • Upgrades, remodeling, modernization

An appraisal is not the same as a home inspection. An appraisal determines value. An inspection determines condition.

‘Subject to’ Flags

One snag that sometimes comes up during conventional (and other) loan appraisals is the “subject to” flag. It points out adverse conditions or problems that must be inspected and/or corrected before a mortgage loan can be approved.

In many cases these items get flagged because the appraiser isn’t an expert in that area and wants a more definitive opinion. Items that fit into this category include:

  • Evidence of termites, dampness, or abnormal settling of the foundation
  • Additions or installations that do not have a required permit
  • Mold
  • Roof leak or roof damage
  • Inadequate electrical service or plumbing fixtures
  • Environmental hazards

HUD Appraisal Checklist

Both FHA and USDA loans require appraisers to conduct additional inspections that follow U.S. Department of Housing and Urban Development (HUD) guidelines. For these loans, the appraiser must also check for the following:

  • Lot drainage that moves away from the house, not toward it
  • Handrails beside steps and stairways
  • Substantial foundation
  • Appropriate ventilation and functioning mechanical systems
  • A roof without leaks that will not need replacing for at least two years
  • Lead-based paint (typically found in homes built before 1978)
  • Defective paint (chipping, peeling, or flaking)
  • Evidence of termites
  • Damage to driveway or sidewalk

HUD Handbook 4000.1 and USDA Chapter 12: Property and Appraisal Requirements list additional appraisal requirements for FHA and USDA loans. 

The FHA requires that appraisers check for signs of termite infestation, but it does not demand a full termite inspection unless the appraiser finds evidence of termites.

VA Appraisal Checklist

A VA appraisal is different from other appraisals in several ways:

  • The appraiser is licensed by the VA.
  • The VA selects the appraiser (not the lender).
  • The appraisal must be reviewed by a VA appraiser or a lender’s staff appraisal reviewer (SAR).
  • The reviewer issues a notice of value (NOV) following the review process.
  • The NOV indicates the home’s value and lists any needed repairs—marked with “subject to” flags—that must be completed before the loan can close.

As with FHA and USDA loans, VA loans require appraisers to conduct “inspection-like” examinations in addition to typical value-based judgements. VA appraisers are expected to check for:

  • Heating system capable of warming the interior to 50 degrees Fahrenheit
  • Sound roof capable of lasting for a “reasonable amount of time”
  • Functioning sewer system
  • Functioning water heater
  • Clean drinking water
  • Secure foundation
  • Working utilities
  • Required pest inspection
  • Peeling or chipping paint
  • Missing staircase handrails
  • Broken windows
  • Rotting wood
  • Water stains
  • Exposed wiring and other electrical issues

How to Use This Information

Whether you are selling, refinancing, or buying a home, the information above can help you know what to expect during the appraisal and use that knowledge to your advantage. For sellers and refinancers, use the information to find and fix problems, update, and otherwise maximize the value of your home and avoid disaster. If you’re a buyer, use your knowledge about appraisals to know what to look for when evaluating your potential new home and wield that as leverage in getting a fair deal.