Insights: Series 2
Appraiser writing a report outside a home in Northern Michigan

How a Home Appraisal Works

A home appraisal can cause both buyers and sellers to be anxious about a sale, but knowing what to expect can make the appraisal process a lot less stressful for everyone.

When you’re preparing to buy or sell a home, a fundamental step that you’re likely to encounter along the way is a home appraisal.

But what exactly is a home appraisal, how much do they cost, and who pays for them?

The Basics of a Home Appraisal

Here in Michigan, a home appraisal is a professional property valuation performed by a licensed real estate appraiser. Such appraisers can be hired by individual home buyers, owners, lenders, and other parties.

As an independent third party, the appraiser evaluates a home to make a determination of its fair market value (FMV). They do this by conducting a physical assessment of the home and comparing its characteristics with sales data of similar homes nearby.

Finally, the home appraiser will present their opinion of value in a detailed appraisal report that usually follows a standard format.

What a Home Appraiser Does

As a neutral third party, a real estate appraiser provides an impartial professional opinion of the current fair market value (FMV) for a home or other type of property.

Home appraisers will use publicly available information, market data, local knowledge and, at least in Northern Michigan, a physical visit to the home in order to prepare a report on the subject property.

A good appraiser will visually inspect the home to observe its exterior and interior condition, making notes of quality, upgrades and additions, and verifying things like number of rooms, mechanical equipment and structural integrity.

The Appraisal Report

One of the key components of a home appraisal report considers the attributes and values of similar homes nearby (known as comparable properties, sales or “comps”).

While appraisals can and do consider homes that are currently for sale in the area, much more weight is given to those that have recently sold.

The appraisal report will briefly analyze these comparable properties based on a standard set of criteria, including:

  • Property type
  • Proximity to subject property
  • Sale price
  • Location view/waterfront/neighborhood
  • Size (number of floors, square footage, acreage)
  • Quality of construction
  • Age
  • Number of bedrooms and bathrooms
  • Common elements/amenities (associations)
  • etc.

The appraiser will then use standard value adjustments to add or subtract value to/from the comps in relation to the subject property. Let’s take a look at a not uncommon scenario.

Example: An appraisal report for a condominium that has a private beach will list other condos that have recently sold as comparable properties. But, these other condos could likely lack such an amenity. In this case, with all other things being equal, the condo with the beach is more valuable.

In a case like the one above, the appraiser will adjust the value of the non-beach comparable home sale upward to equalize its value as if it actually had a private beach, too.

So if the comparable home without the private beach recently sold for $450,000, the appraiser might add $15,000 to the value of the condo with the beach, arriving at a FMV of $465,000.

Appraisals are (Mostly) Neutral

Since appraisers are professionals who have no direct or indirect interest in the real estate transaction, their opinion of FMV generally can be counted on by all parties involved.

While there are times that a buyer or seller may not agree with an appraiser’s determination, it’s rare that an appeal or using a different appraiser will yield significantly different results.

The Importance of Home Appraisals in Northern Michigan

Northern Michigan is a highly desirable resort area, where many home buyers come from other communities and states. This makes a home appraisal that much more important, since familiarity with the current local market could be limited.

Also, the seasonal nature of Northern Michigan makes it difficult for many to gauge the market value of a home. With a large portion people who own homes in this area spending half of the year in warmer climates, getting a local home appraisal helps them understand what a home is worth.

Another consideration is that the Petoskey and Harbor Springs real estate market often is disconnected from most other areas in our state and the rest of the country. As a consequence, what a lot of people may hear or read about housing and real estate may not be related to the Northern Michigan home market.

Home buyers and owners planning to sell in the near future should always start by connecting with local real estate expert with intimate knowledge of the area and the current market. Working with a realtor in Northern Michigan sooner rather than later will help make getting an appraisal fast and easy.

Common Questions & Answers About Home Appraisals

The home appraisal process can be a little confusing (and often frustrating) whether you’re buying or selling a home. To help you be better informed and prepared, here are answers to the most common questions about appraisals.

What happens if the appraisal comes in low?

When the appraisal report comes back with a valuation that’s less than the agreed to selling price, it could jeopardize the sale unless the buyer and/or the seller are prepared, willing and able to act.

As a home buyer faced with a gap in funding (the difference between a low appraisal value and the sale price), you have a few options available:

  • Pay the difference/gap in cash;
  • Renegotiate a lower sale price with the seller;
  • Appeal the appraisal;
  • Walk away (if you were protected with an appraisal contingency).

If you’re the owner selling the home, when the buyer’s appraisal comes in low you also have similar choices available. But before making a decision, you should consider the time and effort it has taken to get this far.

As the seller, unless you have backup offers ready or another buyer paying cash, it’s almost always better to negotiate to make your current deal work. Remember, since the appraised value is very likely accurate, it’s unlikely you’ll get a better offer.

Difference Between a Home Appraisal and Home Inspection

A home appraisal is not the same thing or related to a home inspection. In short, an appraisal helps you find the FMV of a home, while a inspection finds problems with the home and helps you determine how much it’ll cost to fix them.

An inspection is conducted to uncover both minor and major problems in a home. The inspector usually goes into fine detail and points out deficient items that need repairs or replacement, and whether everything in the home is functioning, up to code and sound. This includes everything from windows, doors, and roofs to electrical outlets, appliances and mechanical equipment like furnaces and water heaters.

On the other hand, a home appraisal is primarily concerned with the value of the home. While an appraiser definitely will consider the condition of a home, including most of its visible structure and state of repair, their only interest is in using their observations along with market data to arrive at an opinion of value.

Who Does the Appraiser Work For?

Especially when appraisals come back low, buyers and sellers may often wonder whose team the appraiser is really on. But it’s important to understand that appraisers act as neutral third parties who provide a professional and, perhaps most importantly, impartial qualified opinion of the FMV.

Whether your lender ordered the appraisal or you hired them directly as the buyer or seller, the outcome of the appraisal should always be the same.

How Much Does a Home Appraisal Cost?

Generally, you should expect to pay between $500 and $1,000 for a home appraisal in Northern Michigan. Larger and more complex properties usually increase this cost.

If you’re buying a home with financing, your lender will be able tell you the exact cost of the appraisal. Likewise, if you’re a buyer or seller getting your own appraisal, you’ll be able to get quotes directly from the appraisers.

Who Pays for a Home Appraisal?

The party responsible for paying the cost of a home appraisal is usually the one who hired them (the buyer or the seller). But when you buy a home with financing, the lender will require an appraisal and order an inspection before approving the loan.

In this common scenario, while the lender orders the appraisal, it’s the buyer who will pay for it at closing (unless otherwise stated in the purchase agreement – which is rare).

How Long Does it Take for a Home Appraisal?

While the exact time it takes to get a home appraisal completed in Northern Michigan can vary, a safe window is between 7-10 days.

Some factors that can influence this timeline include the time of year, the volume of business taking place in the current real estate market, and the complexity of the property itself.

For example, a four-season condo unit in Harbor Springs or Petoskey will take much less time than a large seasonal estate with multiple parcels and difficult access.

Who needs to be at the appraisal?

Generally, an appraiser will set their schedule and arrange for a time to access the home with the listing agent or the owner.

If you’re the one buying the home, you don’t need to be at the appraisal and the buyer’s agent typically doesn’t need to be present either. But for homeowners, and their agents, it’s generally a good idea to be at the appraisal to ensure the appraiser knows about any improvements or special features. And sometimes it’s a good idea for the listing agent to have available a list of some favorable comparable sales.

Should Cash Buyers Get Appraisals?

Even when you’re paying cash, getting an appraisal when buying a home can be important because it provides an unbiased valuation of the property and can prevent you from overpaying.

For cash buyers in Northern Michigan, especially if you’re from another state or unfamiliar with our local market, an appraisal can ensure understanding of a home’s true FMV.

Another point to consider is that if professional lenders use home appraisals for the purposes of underwriting their loans, it stands to reason that cash buyers should also take advantage of an appraisal’s protective benefits.

While buyers who need a mortgage will likely include an appraisal contingency in the purchase agreement, cash buyers can choose whether to make a successful appraisal a condition of the sale.

Home Appraisals Benefit Everyone

A home appraisal is a valuable tool for both buyers and sellers. Both parties in a real estate transaction benefit by knowing the fair market value of the property.

Appraisals help sellers price their homes appropriately so they can be competitive to other homes in the market. For buyers, an appraisal provide assurance that they’re paying a fair price for a come in the current market.

All content on this website is for information purposes only. Any information contained herein is not intended to provide legal or financial advice, nor does it create an agency relationship. All information is made available without any guarantee, warranty, or representation of any kind. It is your sole responsibility to seek the services of your own legal, financial, accounting, and real estate professionals prior to any such related decisions or transactions.

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Jeff Kazmierski
Coldwell Banker
Schmidt Realtors