Refinance Appraisal

The Refinance Appraisal Process: A Step-by-Step Guide

While ordered by your lender, the appraisal process is a coordinated effort between the appraiser and you. Here’s a typical breakdown of the steps involved:

1. Lender Initiates the Order: After you apply for a mortgage refinance, your lender engages a licensed, third-party appraiser or an Appraisal Management Company (AMC) to ensure an unbiased and independent valuation.
2. Scheduling the Inspection: The appraiser will contact you directly to schedule a time to visit and inspect the property.
3. The On-Site Inspection: During the visit, the appraiser conducts a thorough walk-through of your home. They will measure the gross living area, take photos of the interior and exterior, note the overall condition, and document key features, upgrades, and any necessary repairs.
4. Comparative Market Analysis: After the inspection, the appraiser researches recent sales of comparable properties (“comps”) in your neighborhood. They analyze this data, making adjustments for differences in size, condition, and features to determine your home’s fair market value.
5. The Final Appraisal Report: The appraiser compiles their findings into a detailed document, such as the Uniform Residential Appraisal Report (URAR). This report provides a comprehensive overview of your property and states their final opinion of its value. The lender uses this report to finalize your loan terms.

Key Factors That Influence Your Home’s Appraised Value

An appraiser evaluates several key elements to determine your home’s value. These include:

• Location: The desirability of your neighborhood, proximity to schools, and local amenities remain primary drivers of value.
• Property Condition: The appraiser assesses the structural integrity, age of the home, and general maintenance. The condition of the roof, foundation, and major systems like HVAC and plumbing are critical.
• Size and Layout: The home’s total square footage, number of bedrooms and bathrooms, and the functionality of its floor plan are key metrics.
• Upgrades and Features: Renovations like an updated kitchen, a finished basement, energy-efficient windows, or a new deck can increase value. However, the return on investment varies by market.
• Comparable Sales (Comps): The sale prices of similar, recently sold homes in your area provide the most direct evidence of your property’s current market value.

What Happens if the Appraisal Comes in Low?

An appraisal that is lower than expected can be disappointing, but it doesn’t automatically end your refinance journey. A low valuation primarily impacts your Loan-to-Value Ratio (LTV), which can lead to several outcomes:

• A Reduced Loan Amount: The lender may lower the approved loan amount to align with their required LTV ratio.
• New or Higher Costs: If the new LTV exceeds 80%, you may be required to pay Private Mortgage Insurance (PMI), increasing your monthly payment.
• Less Cash-Out: If you applied for a cash-out refinance, a low appraisal will reduce the amount of home equity you can borrow against.
• Challenging the Report: You have the right to review the appraisal and submit a Reconsideration of Value request if you find factual errors or can provide better comparable sales that the appraiser may have missed.

How to Prepare for a Successful Refinance Appraisal

While you can’t control the housing market, you can take steps to ensure the appraisal process is smooth and reflects your home’s best qualities.

• Clean and Declutter: An organized, tidy home presents well and suggests that the property is well-maintained.
• Address Minor Repairs: Fix small issues like a leaky faucet, a running toilet, or cracked drywall. These minor fixes prevent the impression of neglect.
• Compile a List of Upgrades: Provide the appraiser with a list of recent significant improvements, including the date of completion and cost. This is especially helpful for non-visible upgrades like a new HVAC system or insulation.
• Ensure Full Access: Make sure all areas, including the attic, basement, and crawl spaces, are safely accessible.
• Improve Curb Appeal: First impressions matter. A freshly mowed lawn, trimmed hedges, and a clean entryway contribute to a positive assessment.

Frequently Asked Questions (FAQ)

How much does a refinance appraisal cost?
A typical refinance appraisal costs between $400 and $800, depending on your location and the property’s size and complexity. This fee is one of the refinance closing costs paid by the borrower.

How is a refinance appraisal different from a purchase appraisal?
A purchase appraisal confirms the home’s value is in line with the sales price for the lender. A refinance appraisal determines the current market value of a home you already own to set the terms for a new loan, affecting your LTV and available equity.

Can I skip the appraisal when refinancing?
In some cases, lenders may grant an appraisal waiver based on automated valuation models (AVMs) and other property data. These waivers are typically offered to borrowers with significant equity and strong credit profiles. However, most refinances still require a full appraisal.

Sources: The Consumer Financial Protection Bureau (CFPB) provides guidance on the appraisal process for consumers.