The home equity loan appraisal process

Home equity loan appraisal process

There are several types of home appraisal techniques that a lender may use to determine the current market value of your home, including:

AVM

An automated valuation model (AVM) is a computer algorithm that estimates a home’s value. The valuations you see on real estate websites may be AVM assessments.

An AVM analyzes information such as recent and historical home sales, neighborhood data, and market trends to estimate the market value of your property. It may replace the need for a full appraisal, where a professional appraiser visits your home.

Like all computer algorithms, an AVM won’t account for features of your home it doesn’t know about, such as recent upgrades and renovations. Talk to your lender if you think those features could increase your property’s appraisal value. You can also examine properties comparable to yours on real estate websites and discuss market trends that the AVM may not have captured with your lender.

How AVM works

An AVM pulls historical MLS data to uncover recent and historical average, median home sales data and other factors. 

The amount of available residential real estate data has exploded in recent years, particularly as more and more information is available online. This means data aggregators and artificial intelligence algorithms have access to home-valuing information in real time and can make appraisal adjustments as new homes are bought and sold. This robust supply of time-sensitive data can sometimes replace the need for a full or walk-through appraisal requiring an interior inspection of the property that can add time and costs to the process.

The AVM can be a fast and easy way to value a home. This makes it possible for a homeowner to find out how much can be borrowed, sometimes in just a few seconds.

Though without the ability to capture incremental information, you may want to have an extra conversation with your lender if special or unique qualities about your home could add significant equity.

To make sure your home is valued as favorably as possible, it may help to dig into your neighborhood’s data on the major online realtor sites or access your town’s public property records. Examine properties comparable to yours and prepare to discuss undocumented trends that you notice with your lender.

Drive-by appraisal

A drive-by appraisal is one where an appraiser examines your home from the outside rather than walking through your property. It may involve them taking photos of the exterior of your home and neighborhood, analyzing comparable properties in the area, and other tasks. 

This method can establish an estimated value of a property, but it’s not as thorough as a full appraisal of a home, as it’s generally based on the view from the street.

If you’re expecting a drive-by appraisal, consider improving your home’s curb appeal. You may be able to do this by trimming hedges, planting flowers, and re-painting or replacing a front door.

Full appraisal 

Lenders may require a full home appraisal for a home equity loan, even though this process may be more time-consuming than an AVM or drive-by appraisal. Just like when you first purchased your home, an appraiser will visit your property to determine its market value.

With a full appraisal, an appraiser can conduct a more comprehensive review of your entire property, including noting any upgrades you’ve made to your home.

Being at home during your appraisal allows you to ask the appraiser questions and offer additional information about your home. Whether you’re physically present for the appraisal or not, be sure to declutter the inside of your property, make any necessary home repairs, and complete other jobs that may help boost your appraisal value.

If you have enough time before the appraisal, consider making small home renovations that potentially have a high cost-to-value ratio, such as replacing an old floor or upgrading appliances.

LEARN MORE: Understanding the home appraisal report