What Happens During a Home Appraisal for Refinance?

A home appraisal is an objective, professional evaluation of a property’s market value. For a mortgage refinance, lenders require this assessment to confirm the home’s value adequately supports the amount being borrowed. The appraisal ensures the property serves as sufficient collateral for the loan, safeguarding the lender’s investment. This process helps determine the loan-to-value ratio, which in turn can influence loan terms and whether private mortgage insurance (PMI) is required.

Preparing Your Home for the Appraisal

Preparing your home for an appraisal involves organizing relevant information and presenting the property favorably. Gathering documents like a list of recent home improvements, permits for additions, previous appraisal reports, or property tax statements provides the appraiser with context regarding the property’s history and enhancements.

Beyond documentation, focusing on property presentation is important. General cleanliness and decluttering all areas, including closets and storage, allow the appraiser to view the home. Ensure areas like the attic, basement, and garage are accessible. Address minor maintenance or repairs, like leaky faucets or loose handrails, to improve appeal and functionality. Major last-minute renovations are not advised.

Improving curb appeal is also important for a good first impression. Tidying up the landscaping, mowing the lawn, and ensuring the house number is clearly visible helps. These efforts convey a well-maintained home, potentially influencing the appraiser’s assessment.

The Appraiser’s On-Site Visit

During the on-site visit, the appraiser conducts a physical inspection of the property. The visit begins with an exterior assessment, examining components like siding, roof, and foundation for condition. Exterior photographs document observations.

Inside, the appraiser walks through each room, noting bedrooms, bathrooms, and condition of finishes. They assess construction quality and functional utility, taking interior photographs. This evaluates the home’s features and maintenance.

Measurements are routine, with the appraiser measuring the home’s exterior to calculate gross living area (GLA). GLA determines finished living space, a key factor. The appraiser also notes features like garages, decks, pools, landscaping, and unpermitted additions. While observing, the appraiser may ask homeowners about property history or recent improvements.

Key Elements Determining Home Value

Appraisers use factors and methodologies to determine a home’s market value. A primary method is the sales comparison approach, relying on recent sales of comparable properties (“comps”). Appraisers select comps sold within the last 90 to 180 days in the neighborhood. Adjustments are made for differences in size, age, condition, and features.

The subject property’s characteristics influence valuation. This includes square footage, number of bedrooms and bathrooms, age, and construction quality and condition. Recent upgrades like a new roof or updated kitchen are also considered if they enhance appeal and functionality.

Location is another determinant of value, including neighborhood desirability, school districts, and proximity to amenities like parks, shopping, and public transportation. External influences like busy streets or commercial proximity can affect value. Broader market conditions, including supply and demand, interest rates, and local economic trends, are analyzed for their impact. Appraisers also account for depreciation, considering physical deterioration, functional obsolescence (outdated layouts), or external obsolescence (negative neighborhood changes).

Interpreting the Appraisal Report

After the on-site visit and data analysis, the appraiser compiles findings into a formal document, the Uniform Residential Appraisal Report (URAR) or Fannie Mae Form 1004. This standardized report provides an overview of the property’s valuation. Key sections include property identification, neighborhood analysis, and a site analysis.

The report features a section on home improvements, outlining age, materials, and structural condition. The sales comparison approach section is central, presenting a grid comparing the subject property to selected comparable sales, with adjustments for differences. Finally, the reconciliation section provides the appraiser’s final value conclusion.

Homeowners receive a copy of this report and should review it for accuracy. Verify that all property details, such as square footage and number of rooms, are correct. Also, check that the comparable sales used are appropriate and similar to your property, as this directly impacts the appraised value, the most significant number for refinance.