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Understanding the California Home Appraisal Process

Summary: This article explains the home appraisal process in California and answers ten of the most frequently asked questions from home buyers.

Infographic with key points about California home appraisals

If you’re planning to buy a home in California, and you need to use a mortgage loan to finance your purchase, you’ll probably go through the home appraisal process.

Most lenders require an appraisal in order to determine how much the home is worth in the current market. FHA and VA loans take it a step further by requiring the appraiser to evaluate the property’s condition as well.

Here’s what you need to know about it, as a home buyer.

Steps in the California Home Appraisal Process

The home appraisal process in California works the same as it does in most other states. While it can vary slightly from one transaction to the next, it usually follows a logical sequence of events.

Here are the three main stages in this process:

Stage 1: Before the Appraisal

  • The home buyer gets pre-approved for a mortgage loan and shops for a house within that price range.
  • The buyer finds a home they wish to purchase and presents an offer to the seller.
  • Both buyer and seller agree to the terms of the deal and sign a purchase agreement.
  • The mortgage lender orders a home appraisal to determine the property’s market value.

Stage 2: During the Home Appraisal

  • The appraiser visits the property to inspect its condition, size, and any features that might affect the value.
  • The appraiser compares the property to similar homes that have recently sold in the same area (i.e., “comps”).
  • The appraiser creates a detailed report outlining the property’s value and the factors considered to arrive at that number.

Stage 3: After It’s Completed

  • The appraisal report is sent to the mortgage lender for review and underwriting.
  • The lender compares the appraised value to the purchase price the buyer has agreed to pay.
  • If the appraised value is equal to or higher than the offer amount, the loan will move forward and possibly get approved.
  • If the appraisal comes in lower than the purchase price, the buyer might have to renegotiate the sale price, pay the difference out of pocket, or exit the deal.
Your mortgage lender should explain this process to you up front, when you first apply for a loan or get pre-approved. But it always helps to be proactive and ask questions when you’re not sure.

FHA and VA Loan Appraisals Work Differently

When it comes to the home appraisal, government-backed mortgage loans like FHA and VA work a little differently from conventional financing.

The Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) insure or guarantee home loans originated by mortgage lenders in the private sector. This government backing gives the lender additional protection against borrower default.

But it also brings more rules and requirements into the picture.

In addition to determining the current market value, FHA and VA appraisals must ensure that the home meets the minimum property requirements for the specific program being used. So it’s like a standard home appraisal with a basic inspection component baked in.

With a conventional home loan, the appraiser is solely focused on estimating the value. With an FHA or VA loan, the appraiser will estimate the value but also review the home for safety, structural soundness, and habitability.

Top 10 Frequently Asked Questions

We know from experience that home buyers in California have a lot of questions about the appraisal process. Below, we’ve offered some straightforward answers to ten of the most common ones.

1. What is a home appraisal?

A home appraisal is when a professional appraiser estimates the current market value of the property you’re planning to buy. Appraisals include an assessment of local market conditions, property features, and other factors that relate to value.

The primary goal is to determine what the home is worth based on how it compares to recent and similar sales in the area.

2. How is this process different from a home inspection?

First-time home buyers in California often confuse the appraisal and the inspection, thinking they are one and the same. In reality, they serve two very different purposes.

  • A home appraisal focuses on determining or estimating the value, as mentioned above. The appraiser looks at the house and compares it to similar homes in the area to figure out how much it’s worth. This helps the lender decide if they should give you a loan for that amount.
  • A home inspection focuses on the house’s condition. The inspector carefully examines the house to find any problems or issues. They’ll inspect the plumbing, electrical system, roof, foundation, and more. The goal is to make sure the home is in good shape and doesn’t have any serious or hidden problems.

The appraisal and the inspection both reveal important information about the house, to help the home buyer and lender make informed decisions. But they focus on different aspects of the property.

3. Is a home appraisal required in California?

In California, home appraisals are usually required when a person needs to use a mortgage loan to finance their purchase.

Lenders require appraisals as part of the underwriting process. They need to determine the current market value of the property to protect their investment. In short, lenders use appraisals to ensure the property is worth the amount being paid for it.

If a borrower cannot make their monthly mortgage payments and ends up in foreclosure, the lender will need to resell the house to recover their investment. The appraisal helps them ensure that they can sell the property for the loan amount and possibly more.

But this process can also protect you, as the home buyer. Without an appraisal, you might end up overpaying for a house in California without even realizing it.

Having the home appraised gives both the lender and the borrower better insight into the current market value.

4. Who orders it, the buyer or the lender?

In a typical home-buying scenario in California, it’s usually the lender who orders the home appraisal. They do this to make sure the property is worth the amount of money they’re lending you. So it benefits them directly.

However, the buyer is typically responsible for paying the appraisal fee. So even though the lender arranges the appraisal, the buyer covers the cost. The fee might be due when the service is performed, or rolled into the closing costs. It can vary.

California home buyers who make all-cash purchases are not required to have a home appraisal, but they might still choose to have one. The benefit here is the same. The buyer gets a professional opinion about the current market value of the home, which could help them avoid overpaying.

5. How much does a home appraisal cost in California?

In California, home appraisals typically cost somewhere between $500 and $700, on average. But they can fall outside of that range as well, costing more or less depending on the situation.

According to the National Association of Realtors 2023 Appraisal Survey: “the typical cost to complete an appraisal is $500. Eighty-six percent report a cost of $400 or more.”

Those are national figures. Here in the state of California, residential property appraisals can cost more due to higher demand and other factors.

According to a report from the real estate data company Zillow:

“Location matters for two reasons. First, costs vary based on how far appraisers have to travel. Appraisers in rural states may charge more because of how far they have to travel. Second, in high-demand real estate markets, like California, appraisers may charge more because the need for appraisals is higher.”

6. What happens during this process?

The appraiser will evaluate local market conditions in the area where the home is located, paying particular attention to recent sales prices for similar homes.

He or she will also visit and examine the property being purchased. The appraiser will consider any value-adding features such as a premium location, kitchen renovations, energy-efficient upgrades, etc.

Based on this evaluation, the appraiser will provide an estimate of the property’s current market value. This report will be delivered to the mortgage lender electronically, where it goes into the loan file.

7. How long does it usually take?

The home appraisal process in California can take anywhere from five days to two weeks — or longer in complicated scenarios. The timeframe can vary due to a number of factors, including the age and size of the home, the availability of comparable sales data, the appraiser’s current workload, etc.

Some cities in California have a shortage of qualified appraisers, which can make the process take longer.

8. How do appraisers decide what the home is worth?

Comparable sales play an important role in the California home appraisal process. This term refers to similar homes that have sold recently in the same area as the property being appraised. They are commonly referred to as “comps” by industry professionals.

Appraisers usually look for houses that have sold within the last 90 days, within a mile of the appraisal home. Those are ideal parameters for a real estate comp.

They also consider a variety of factors, such as:

  • Size and square footage
  • Number of bedrooms and bathrooms
  • Overall condition and appearance
  • Amenities, features and additions
  • Desirability of the neighborhood or community

9. Do they consider the neighborhood and market?

Yes, appraisers also consider the neighborhood and the local housing market when figuring out how much a home is worth. They don’t just look at the house itself. They pay close attention to the area where the house is located.

If the property is located in a nice neighborhood with good schools and easy access to transportation and amenities, it could boost the home’s value. On the flip side, if it’s in an area with issues like high crime rates or declining property values, the location could lower the home’s value.

The local housing market is also crucial. California home appraisers often check to see if home prices in the area have been going up or down recently. If lots of houses are selling for higher prices, it might mean your home is worth more too. But if prices are falling, that could impact your home’s value in a less favorable way.

10. What if the home appraises below the purchase price?

Sometimes a home will be appraised for an amount that’s less than what the buyer has agreed to pay. (This is what people mean when they say a house “did not meet appraisal,” or that the appraisal “came in low.”)

As a home buyer, you could have several options in this scenario:

  • Negotiate with the seller to reduce the sale price.
  • Increase your down payment to cover the difference.
  • Negotiate a split of the difference with the seller.
  • Request a reconsideration of value (ROV) from the appraiser.
  • Walk away from the deal and find another home to buy.

In California, home buyers will sometimes include a contingency within their purchase agreement that the home must be appraised at the selling price or higher. This is known as an “appraisal contingency.” It allows the buyer to back out of the transaction if the appraisal comes in lower than the sale price.

But it doesn’t have to come to that. In many cases, sellers are willing to reduce the sale price to match the appraised value. After all, everyone wants the deal to go through.

Have questions? We hope you’ve enjoyed this guide to the California home appraisal process. If you have questions related to the mortgage side of things, or if you’d like to receive a rate quote for a home loan, please let us know!

Mike Trejo is a Bay Area mortgage broker with 20+ years of knowledge and experience.

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