Do I Have to Get an Appraisal to Purchase a House?
An appraisal is one of the steps to get a home mortgage. If you are purchasing a house with the help of a lender, an appraisal is required. This is part of the lender’s due diligence to determine if they want to make the loan. They want to be sure the home is worth the amount of the loan you are asking for. The home becomes the collateral used to secure the mortgage and the lender wants to be sure it can be sold to cover the loan amount if the borrower defaults.
How Is a House Appraised?
The exact steps in the appraisal process depend on the amenities and condition of a home. Typically, appraisers look at:
- Square footage
- Number of rooms
- Quality of the location
- Recently sold, comparable properties
Some lenders have more extensive requirements for appraisals. For example, for buyers with FHA- or VA-backed loans, appraisers are required to assess the functionality of a home’s appliances and utilities. The home appraisal timeline is impacted by the complexity of an appraisal, and it can take anywhere from one to four weeks to complete.
Determining the Appraised Value of a Home
A home appraisal is conducted by a certified appraiser, who is chosen by your lender. Most appraisers gather information on the condition of a home, comparable properties, and the state of the market. The appraiser will then tell your lender how much they believe the house is worth.
While your lender chooses the appraiser, you pay for that service. The cost of the appraisal is determined by factors including the amount of time it takes for the appraiser to complete the process and the home’s location. On average, home appraisals cost between $300 and $800.
How Are Appraisals Different for Newly Constructed Houses Vs. Existing Homes?
There are some differences between home appraisals on new construction and existing homes. New construction homes often are appraised using the cost method while appraisers may use the sales method to value existing homes.
The cost method looks at the value of land plus the actual cost to build it. For homes under construction, the appraisal will be done using documents provided by the builder. These include:
- A blueprint of the house
- A list of materials used
- Data on the home’s features (e.g., number of windows, doors, bathrooms, garage spaces, etc.)
- A breakdown of the total cost of the land and construction costs
Using this information and market research, your appraiser will calculate a Loan to Value Ratio (LTV), which the lender uses to assess how much risk is involved in providing a loan for a home that’s still being built.
Appraisals on existing homes typically are done using the sales method. This involves comparing recent selling prices for homes in the neighborhood that are in similar condition, and have similar square footage, features, and amenities.
An appraisal on a new construction home within Hillwood Communities is likely to be simpler than a valuation for other new builds. That’s because lenders know Hillwood’s reputation as a leading residential developer. They know we partner exclusively with trusted builders who produce high quality homes on time and on budget. New home construction loan contingencies that might give a lender cause for concern when other builders are used are never a factor when one of Hillwood’s quality builders is on the job.
Even though it is not yet built, a home in a Hillwood community may be evaluated for its value using the sales method because there are similar homes in the neighborhood for appraisers to use as comps. Also, when buyers choose a quick move-in home, there is a finished home for an appraiser to look at for valuation purposes. Hopefully this can speed up the appraisal process and put you in your dream home faster!
What if the Appraisal is Lower than the Contract Price?
Since the housing recession in 2008, lenders want to be sure that they are not loaning more money than a house is worth. They cap their offers at the appraised value of a home, even if that figure is lower than the price on the contract. If your appraisal is lower than the purchase price, it’s reasonable to ask your lender for a second opinion on the appraisal. They may be willing to hire another appraiser to take a look at the home you’re interested in purchasing. Keep in mind that you would be required to pay the appraisal fee again.
Other options are to pay the difference between the appraised value and the sales price of the home (or accepted offer price) in cash or to ask the seller to renegotiate the sales price.
Of course, in competitive real estate markets, prices are higher, low appraisals are more common, and sellers have little incentive to negotiate. Another buyer’s appraisal may come in higher, they may be able to put down a larger down payment, or they may even pay cash.
Many homebuyers at Hillwood Communities choose to use a builder’s preferred lender and appraiser. This can be a great way to ensure your new home appraises for the appropriate amount. It’s part of what makes purchasing a new home in the Hillwood community easy and low risk.
After the Appraisal Is Done, Can I Buy the House?
Appraisers write detailed appraisal reports to explain and justify the value they determine for a house. Both you and your lender will receive a copy of the report, which will include sketches and photographs of the house, market research, and details about the property.
The next step after appraisal is closing and taking posession of your dream home! Congratulations!
Home Appraisal FAQs
What factors into a home appraisal?
A home appraisal involves an inspection of the house to check for needed repairs, calculate square footage, and document its amenities. Then, an appraiser researches the pricing of recently sold, comparable houses nearby, and they consider the desirability of the house’s location. Should a house be in disrepair or near an undesirable facility—for example, a landfill—an appraiser would calculate a lower total value of the house.
Does an appraiser know the offer price?
An appraiser often knows the price on the listing, but it does not factor into their appraisal. The value they calculate is based on the house’s condition and location and the market.
When does appraisal happen?
An appraisal happens just before the underwriting process for a home loan. It’s for your lender to determine the market of the home in order to ensure it is adequate collateral for the mortgage.
How long does it take to get a house appraised?
Depending on the complexity of the appraisal, the process takes anywhere between one and four weeks.
What is the average cost of an appraisal?
The average home appraisal across the US is between $300 and $800. Typically, more expensive areas require more expensive appraisals.
Find Your Home in Hillwood Communities
Take a look at the new construction homes in Hillwood Communities. We have new home communities in DFW, Austin and Houston, and our community websites offer an array of virtual shopping experiences including:
- Community photo galleries and videos
- Floor plan options
- Home elevation options
- Lot options
- Virtual tours
- New home inventory listings
- Community amenity maps
We welcome you to discover your next dream home online and learn what makes Hillwood Communities so special!