Home Appraisal: Everything You Need to Know

August 15, 20238 min read
Home Appraisal: Everything You Need to Know
Share on facebookShare on TwitterShare on Linkedin

Key Takeaways

  • An appraisal is a valuation of property such as real estate by an authorized individual who must be designated as such by a regulatory body governing the appraiser’s jurisdiction.
  • A home appraisal establishes the property’s value to make sure its price reflects the house’s condition, location, age, and features such as a finished basement or number of bedrooms.
  • If a homebuyer’s valuation comes in under the purchase price, the buyer can choose to ask the seller to renegotiate the price to bring it closer to the property’s appraisal value.

Homebuyers and investors in real estate would do well to fully understand property appraisals, including how they work and what to do if theirs comes in too low. After all, an appraisal is a turning point in the real estate transaction — and can potentially make it or break it.

With that said, here is:  home appraisal — everything you need to know.

What is an Appraisal?

An appraisal is a valuation of property such as real estate by an authorized individual who must be designated as such by a regulatory body governing the appraiser’s jurisdiction. In addition to real estate, such property can also include an antique, collectible, or business, for example.

Official appraisals, meant to be fair and unbiased, are commonly utilized to set a potential selling price for a property or item, and for insurance and taxation purposes. 

Appraisals are also often conducted to establish the value of a charitable donation for itemized deductions. Some types of insurance policies that goods being insured are appraised. There may also be an appraisal clause that, in the event of a dispute between the owner and insurance company, the two parties will secure an appraisal from a mutually agreed-to appraiser.

Primarily, though, appraisals occur in real estate.  They are a big deal, as mortgage lenders are apt to reject a loan application if the valuation is less than the home purchase price.  

Types of Home Appraisals

The process of buying or selling a home, or the refinance of an existing mortgage, usually requires a home valuation.  In fact, an appraisal is an essential part of the process, as the outcome can potentially cost money, delay, or even scuttle the whole transaction.

The appraisal seeks to verify that the home’s sale price is aligned with fair market value. If it is, the investor or homebuyer does not pay more than the property is worth, and the lender does not lend more than the house is worth.

The appraisal’s accuracy is of utmost importance because the property secures the loan – it is the borrower’s collateral. The lender, likewise, will seek an appraisal to confirm market value when a homeowner is seeking to refinance their mortgage. 

The different types of home appraisals include:

  • Full home appraisal. Here, the appraiser inspects the home’s interior and exterior.
  • Drive-by, or exterior only. Just as it sounds, an appraiser will only drive by the property and take photos.
  • ACE + Property Data Report (PDR). Qualified borrowers with Freddie Mac-backed mortgages can use this instead of a full appraisal.
  • Automated Valuation Model. This is a computer program that employs an algorithm to figure a property’s value. 

What is the Process of Home Appraisal?

A home appraisal establishes the property’s value to make sure its price reflects the house’s condition, location, age, and features such as a finished basement or the number of bedrooms. Lenders benefit from valuations in that they are less likely to lend more than the property is worth.

Should the borrower default, the lender uses the appraisal as the home’s valuation should there be a subsequent default, wherein the home must be sold to recoup losses.

The process generally works like this: the appraiser will visit the property – the buyer and seller may request to be present — and utilize the collected information to establish an appropriate estimate for its value. At this point, the appraiser will also examine the values of comparable area homes. Subsequently, the appraiser will prepare an appraisal report that will include a dollar figure that represents the property’s perceived value.

Copies of the report, which will generally take a week to 10 days to complete, will go to the purchaser and their mortgage lender, although the seller may also request a copy.

Should the buyer dispute the appraisal report, they may seek a lender reconsideration or pay for a second appraisal.

What Does a Home Appraiser Look For?

There are a number of elements home appraisers consider when fixing a home’s value, including:

  • The home’s location
  • Characterization of the neighborhood (rural? urban? growing?)
  • House layout
  • Square footage of house and lot
  • Any hazards such as flood dangers
  • The condition and age of the home’s foundation, walls, roof, and overall structure
  • Condition of the home’s appliances
  • Any amenities such as a deck, swimming pool, or tennis court
  • Price ranges and sales trends for comparable area homes  

There are various valuation methods an appraiser can employ to determine a property’s appropriate value, such as comparing similar objects’ or properties’ current market value.

How Much Does an Appraisal Cost?

Appraisers charge either an hourly rate or flat fee for their services, which cost between $300 and $450 on average, often depending on the property’s size. Usually, the buyer is responsible for covering appraisal fees.

What if the Appraisal Comes in Too Low?

If a homebuyer’s valuation comes in under the purchase price, the buyer can choose to ask the seller to renegotiate the price to bring it closer to the property’s appraisal value. Another option, if the buyer has the means, is to make up the difference between the lender’s offer and the appraised value.

If the sale contract contains an appraisal contingency, the buyer can potentially step away from the deal and have their deposit refunded.

How to Improve Your Home’s Appraisal Value

While appraisals are supposed to be objective, appraisers are people, after all. Thus, there are ways to optimize the valuation of one’s home that are not that expensive or time consuming:

  • Make sure rooms are spare and uncluttered, as that sends the message that the home is well kept.
  • Make minor aesthetic enhancements to the house’s exterior appearance.
  • Apprise the appraiser of any big improvements made, to make certain they know about them. 

Home inspection vs Home Appraisal

Although the terms are often conflated, a home appraisal is different from a home inspection, which is conducted to establish the property’s condition and identify any prospectively serious issue before a buyer advances to closing. An appraisal assesses the home’s value as a dollar amount.

Investing in Real Estate

There are a number of ways to invest in real estate, which continues to be popular. After all, since 2000, private real estate has outperformed stocks as well as fixed income on a risk-adjusted and absolute basis. 

Further, real estate has historically outpaced inflation and because it does not directly correlate with public markets, it can help reduce overall investment portfolio volatility. Real estate can also provide tax advantages.

The alternative investment platform Yieldstreet, on which $4 billion has been invested to date, with a 9.6% IRR, as of 10/31/2023, is an all-in-one marketplace for alternatives. Such assets — “alternatives” to stocks and bonds – include art, transportation, crypto, private credit, and more, including real estate.

Yieldstreet has raised more than $900 million across more than 100 highly vetted real estate offerings, with minimums as low as $10,000.. Thus far, more than $350 million in principal have been repaid to investors.

Rather than investing directly into a property, fractional real estate exposure can be gained through Yieldstreet’s REIT (real estate investment trust). In all, Yieldstreet provides such exposure through debt and equity investments, directly as well as indirectly.

Another major benefit of investing in real estate is diversification – the spreading of one’s investments both among, and within, varying asset classes – which can reduce overall portfolio volatility as well as risk and can potentially improve returns. In fact, diversification is widely considered a foundational element of long-term investment success.  

Invest in Real Estate

Unlock the potential of private real estate markets.

Portfolio Diversification and Alternative Investments

Alternative investments can be a good way to help accomplish this. Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings. 

Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk. 

In some cases, this risk can be greater than that of traditional investments.

This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million.  These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform.

However, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other unique alternative investments. 

Moreover, investors can get started with a relatively small amount of capital. Yieldstreet has opportunities across a broad range of asset classes, offering a variety of yields and durations, with minimum investments as low as $10,000.

Learn more about the ways Yieldstreet can help diversify and grow portfolios.

In Summary

Banks will generally not lend money if the property’s appraised value is less than the overall loan. So, appraisals are a necessary and crucial part of buying or selling real estate. That is why it is important to know what appraisers look for and what moves to make if the appraisal is too low. Remember, too, there are many ways to invest in real estate, which also serves the essential purpose of investment diversification.

We believe our 10 alternative asset classes, track record across 470+ investments, third party reviews, and history of innovation makes Yieldstreet “The leading platform for private market investing,” as compared to other private market investment platforms.

1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.

3 "Annual interest," "Annualized Return" or "Target Returns" represents a projected annual target rate of interest or annualized target return, and not returns or interest actually obtained by fund investors. “Term" represents the estimated term of the investment; the term of the fund is generally at the discretion of the fund’s manager, and may exceed the estimated term by a significant amount of time. Unless otherwise specified on the fund's offering page, target interest or returns are based on an analysis performed by Yieldstreet of the potential inflows and outflows related to the transactions in which the strategy or fund has engaged and/or is anticipated to engage in over the estimated term of the fund. There is no guarantee that targeted interest or returns will be realized or achieved or that an investment will be successful. Actual performance may deviate from these expectations materially, including due to market or economic factors, portfolio management decisions, modelling error, or other reasons.

4 Reflects the annualized distribution rate that is calculated by taking the most recent quarterly distribution approved by the Fund's Board of Directors and dividing it by prior quarter-end NAV and annualizing it. The Fund’s distribution may exceed its earnings. Therefore, a portion of the Fund’s distribution may be a return of the money you originally invested and represent a return of capital to you for tax purposes.

5 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.

6 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments, excluding our Short Term Notes program, weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including July 18th, 2022, after deduction of management fees and all other expenses charged to investments.

7 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Alternative Income Fund before investing. The prospectus for the Yieldstreet Alternative Income Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to www.yieldstreetalternativeincomefund.com. The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.

8 This tool is for informational purposes only. You should not construe any information provided here as investment advice or a recommendation, endorsement or solicitation to buy any securities offered on Yieldstreet. Yieldstreet is not a fiduciary by virtue of any person's use of or access to this tool. The information provided here is of a general nature and does not address the circumstances of any particular individual or entity. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of this information before making any decisions based on such information.

9 Statistics as of the most recent month end.

300 Park Avenue 15th Floor, New York, NY 10022

844-943-5378

No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice, except for specific investment advice that may be provided by YieldStreet Management, LLC pursuant to a written advisory agreement between such entity and the recipient. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.

Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefore.

Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.

Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.

Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.

Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.

Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and are willing and able to accept the high risks associated with private investments.

Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.

YieldStreet Inc. is the direct owner of Yieldstreet Management, LLC, which is an SEC-registered investment adviser that manages the Yieldstreet funds and provides investment advice to the Yieldstreet funds, and in certain cases, to retail investors. RealCadre LLC is also indirectly owned by Yieldstreet Inc. RealCadre LLC is a broker-dealer registered with the Securities and Exchange Commission (“SEC”) and a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Information on all FINRA registered broker-dealers can be found on FINRA’s BrokerCheck. Despite its affiliation with Yieldstreet Management, LLC, RealCadre LLC has no role in the investment advisory services received by YieldStreet clients or the management or distribution of the Yieldstreet funds or other securities offered on our through Yieldstreet and its personnel. RealCadre LLC does not solicit, sell, recommend, or place interests in the Yieldstreet funds.

Yieldstreet is not a bank. Certain services are offered through Plaid, Orum.io and Footprint and none of such entities is affiliated with Yieldstreet. By using the services offered by any of these entities you acknowledge and accept their respective disclosures and agreements, as applicable.

Investment advisory services are only provided to clients of YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission, pursuant to a written advisory agreement.

Our site uses a third party service to match browser cookies to your mailing address. We then use another company to send special offers through the mail on our behalf. Our company never receives or stores any of this information and our third parties do not provide or sell this information to any other company or service.

Read full disclosure