Home shopping is like running a race — there are a lot of hurdles to clear before you cross the finish line! The process starts with getting preapproved for a mortgage, finding a home and making an offer, and having your offer accepted. That’s common knowledge, anyway … but a long stretch of the race happens after that!
One of the biggest hurdles to clear after you’ve had an offer accepted is the home appraisal. Your new home has to appraise at least at your offer price so that you can qualify for a mortgage. Because the home serves as collateral for the loan, the lender wants to know … wait, what do they want to know?
Paying for an appraisal is part of the buyer’s responsibility — but who does the appraisal, and are they worth what you’ll spend?
Here’s who does a home appraisal and how they’re trained to become qualified to determine what a house is worth.
Who does a home appraisal?
First off, there is more than one type of home appraisal. At the moment, you can find three general types of home appraisals: a traditional full home appraisal conducted by an appraiser, a hybrid appraisal that’s reviewed by an appraiser, and a broker price opinion (BPO) or comparative market analysis (CMA) put together by a real estate agent or broker. So: Who performs your home appraisal will depend on the type of appraisal your lender requires.
But generally speaking, the answer is an appraiser — if it’s not a full appraisal, then an appraiser is likely to be peripherally involved. If you’re paying cash for your home, whether or not you get a full appraisal to confirm that the value aligns with what you’re paying to own it is up to you.
Who does a full home appraisal?
A full home appraisal is always conducted by an appraiser, who’s certified by the state. All states require that appraisers be state-licensed and certified, but the standards vary from state to state.
Lindsey Chaney is an experienced agent in Troy, Ohio, who works with 69% more single-family homes than other agents in her area. She says that appraisers are “sometimes individuals, sometimes they’re bigger companies, hired by the lender.” She tells buyers that they don’t have any say in who the lender sends out, and agents aren’t even supposed to contact the appraiser.
Tom Cullen is a licensed real estate appraiser certified by the National Appraisal Institute, who has been appraising homes for more than 30 years. According to him, “Each state has their own licensing division, and an appraiser must be licensed in each state in which they practice.”
There are four types of appraiser classifications:
- Certified general real property appraiser
- Certified residential real property appraiser
- Licensed real property appraiser
- Trainee appraiser, who work under a certified or licensed appraiser’s supervision
The type of certification you want your appraiser to have will also depend on the type of property you’re buying. If you’re buying a duplex or another type of multifamily home, you would select either a certified residential realty property appraiser, who can evaluate properties with up to four units, or a certified general real property appraiser. They can appraise any building.
Appraisers must also be impartial third parties — they can’t be related to or involved with anyone else in the transaction. They should be unbiased entities who can offer a qualified opinion about a property’s value.
What goes into a full appraisal?
A full appraisal must include several key components that make it what Cullen calls a “defensible document.” In other words, an appraisal is a document whose conclusions could be defended and supported, either to a lender or in a court of law.
“An appraisal is a defensible document that demonstrates the methodology and includes supporting documentation,” he explains.
A full appraisal will include the following:
Visual property inspection
During the visual property inspection portion of a full appraisal, your appraiser walks around the property and examines the foundation, roof, flashing, gutters, and other important areas.
They may take photographs or videos to document their findings if they see damage or deterioration that lowers the home’s value, particularly when compared to nearby homes in better condition.
A neighborhood analysis will consider crime, safety, access to transportation, the quality of the schools, and other factors that impact a neighborhood’s value.
Cullen says, “We will update location maps, FEMA flood maps (in the case the property is in a flood zone), and we are going to look at municipal data and public records,” to get the full picture of how your home’s location could impact its value and your quality of life.
A comp analysis looks at comparable sales near the home you want to buy. Appraisers try to find close matches — homes with the same number of bedrooms and bathrooms, similar square footage, and similar age and condition as the home they’re appraising. They may reference the visual property inspection in this section if it revealed damage that would lower your home’s value when compared to another recent sale.
Appraisal value conclusion
The appraisal’s conclusion gives an estimate of your home’s worth. It outlines why, based on the above factors, the appraiser has reached this conclusion.
How are appraisers trained?
To get licensed as an appraiser, trainees have to complete 75 hours of initial training, followed by 2,500 hours of experience in the field, and then another 75 hours of coursework before they can sit for the exam.
The first 75 hours of training consists of three courses: basic appraisal principles, basic appraisal procedures, and the Uniform Standards of Professional Appraisal Practice course.
They complete their hours of practical experience under a certified appraiser’s supervision. The supervisor must document their work and then submit it to the state’s regulatory board when their trainee applies for their license.
The requirements for the remaining hours of continuing education vary depending on the state and the type of license.
Appraisers have to pass an examination and meet minimum requirements as set by the Appraiser Qualifications Board, or AQB, which is authorized by Congress.
Who does a hybrid appraisal?
With a hybrid appraisal, the appraiser reviews the final numbers, and they have photos available to review, but they may not be as heavily involved with (for example) visual property inspection or comp analysis. They likely will hire a third party to do the visual inspection and take measurements and photographs.
The third party could be an appraisal trainee, a home inspector, or a real estate licensee. They likely won’t be a fully licensed and certified home appraiser, though they could have other qualifications, but the appraiser will review their work. You’ll get the results sooner because a hybrid appraisal takes less time than a full appraisal.
Hybrid appraisals have become more common in refinance mortgage applications, and some lenders began allowing them during the pandemic. If you’re putting down more than 20% and the lender has fewer concerns about the home’s value and the risks involved with repayment, they might allow a hybrid appraisal.
A hybrid appraisal costs less than a full appraisal, so it’s a great option if you’re paying cash and don’t need a lot of reassurance about the home’s value.
Who does a BPO or CMA?
Who prepares a broker price opinion (BPO) or comparative market analysis (CMA)? Brokers and real estate agents!
They use similar tactics as appraisers do — neighborhood analysis and comp analysis, for example — and could also include a visual inspection.
Your agent will likely prepare a CMA when you’re drawing up your offer, particularly looking at comps so that you can offer a fair but competitive amount. And when a real estate agent works with a seller, they will also use a CMA to determine a good list price.
Real estate agents are very educated and know a lot about real estate; however, they aren’t trained appraisers, so that’s why a CMA or a BPO will cost less and also aren’t useful in an actual transaction scenario.
It can be an unwelcome surprise if your appraisal comes in low after your agent prepared a CMA. After all, the appraiser should have used the same data! But it does happen.
In Chaney’s experience, “when there’s a difference in opinion, it’s because almost always an appraiser is from out of town and is unfamiliar with the market. Maybe they didn’t take into consideration, ‘Hey the front part of this neighborhood is desirable, and the back section isn’t because those houses back up to the highway.’”
It happened to Chaney recently, and she was able to get it overturned for her buyers because the appraiser missed four or five more similar comps and a better fit for the home. If it happens to you, you’ll want a good agent on your side to help you navigate the next steps.
Who does an online appraisal?
Before making your offer, you probably went to a major real estate website and looked up the home’s estimated value. Setting your expectations based on these automated valuation models can be a recipe for disaster, or at least disappointment.
The home values on these sites are just calculated by a robot behind the algorithm — often with no humans involved at all beyond building the algorithm.
“They are not taking factors into account such as quality, condition, and so on,” Cullen points out.
“For instance, in New England, we have such a mixture of property types. We may have a Colonial-style home, next to a ranch-style home, a clam shack down the street, and also some commercial influence mixed in.” Each of those homes would appraise differently when a qualified, licensed appraiser calculated their value, but an algorithm might not know the difference.
While online appraisals can serve as a guide, you’re better off leaning on your agent’s expertise when writing an offer and using a certified appraiser for a mortgage.
Having a home appraised is generally a straightforward process. You can count on your state’s licensure requirements to protect you, but if anything comes up during the appraisal hurdle of your homebuying race, you’ll definitely want an experienced agent by your side.
Header Image Source: (Kathleen Culbertson / Unsplash)