If you own real estate, there will come a time when your property needs to be appraised. You’ll need to know how to choose a home appraiser. Whether you're buying or selling a property, trying to remove your mortgage insurance payment (PMI), or pulling out equity through a HELOC or refinance program, a home appraisal will determine the current value of the home.
Certain situations may allow the buyer or seller to contract their own independent home appraisal, while others require a pre-selected third-party vendor.
Before going out and signing off on your own home appraisal, take a look at when and how to choose a home appraiser.
What is a home appraisal process and what is it based on?
A home appraisal is an unbiased, impartial valuation of a property's worth at a given time from a licensed appraiser. A formal home appraisal is similar to a comparative market analysis (CMA) in that it derives the value of the property based on its condition, market conditions, and recent sales of similar properties nearby, but it's often considered more accurate because of its impartiality.
A home appraisal can be ordered independently by a homeowner or prospective buyer or it can be ordered by a lender or third-party company. If you need an appraisal, it’s important to learn when you can and cannot hire an independent home appraiser.
When you cannot hire your own independent home appraiser
Typically, you cannot hire an independent home appraiser when a bank or lending institution is involved. Banks often feel there can be a bias in an independent appraisal report when it's ordered by the seller or prospective buyer.
To keep it fair, they'll order their own third-party appraisal to derive the true value. The appraisal will come back on par, high, or low in relation to the property's purchase price or estimated value and helps the bank ensure it's not lending more than the property is worth.
The cost for this appraisal is typically passed onto the buyer or homeowner and can be rolled into the closing costs or the loan amount.
You can hire your own independent appraiser, but the bank won't take it into consideration or use it in their underwriting or loan approval process.
When you can hire your own independent home appraiser
There are times when you might want to hire your own independent home appraiser -- the most obvious being if you want an accurate picture of your home's worth. Maybe you want to refinance but aren't sure what your property's current value is. Or you're preparing your property for sale and want to determine an appropriate list price.
You may also want or need to hire an independent home appraiser to value your home if you file for bankruptcy and plan to strip a second mortgage because the total debt is greater than your property value.
If you hire your own appraiser, remember that the results can be provided to prospective buyers or the bank, but rarely will they be taken into consideration.
How much does it cost to hire an independent home appraiser?
An independent home appraisal can run anywhere from $300 to $500, depending on the state you're in and how large the property is. For many people, the cost of an independent home appraisal isn't worth it when they can receive a valuation, such as a CMA, from a Realtor.
If you want to order a formal appraisal, look for licensed appraisers in your area. Read reviews about the company and find out the appraiser's experience and expertise in your area. Just because a company comes recommended doesn't mean the appraiser conducting the valuation is reputable.
If someone is new to the field or inexperienced, the appraisal may be an inaccurate representation of your property’s worth. Look for someone who has experience in real estate valuations or home appraisals and someone who is knowledgeable on your market or neighborhood.
Consider a CMA or BPO first
In most cases, a formal appraisal will give the most accurate valuation for your property's value, but depending on what the appraisal is being used for, it may not be a good idea to order your own independent home appraiser. If you need to know the value of a property, consider having a CMA or BPO completed before hiring a formal appraiser.