Home Appraisal 101: What Should You Know Before Buying a Home?
A home appraisal is a crucial part of any real estate transaction, whether you’re purchasing a property with a mortgage, refinancing your current mortgage, or selling your house to a buyer other than someone who is paying cash. You should comprehend the appraisal procedure and how an appraiser establishes a home’s value if you’re a buyer, owner, or seller.
- When a mortgage involves a property’s purchase, refinancing, or sale, an appraisal provides an unbiased professional judgment of the property’s value.
- To estimate the property’s assessment value, a skilled appraiser compiles a report based on an in-person inspection, taking into account previous sales of comparable properties, current market trends, and features of the house (such as amenities, floor layout, and square footage).
- The borrower often pays the appraisal fee, which might be several hundred dollars.
The purchase may be postponed or even abandoned if the appraisal value is lower than anticipated.
What is a Home Appraisal?
An expert appraisal of a house’s value is neutral and objective. In purchase and sale transactions and frequently in refinance transactions, appraisals are virtually always used. An appraisal is used in a purchase-and-sale transaction to assess if the home’s contract price is reasonable in light of its state, location, and attributes. An appraisal ensures the lender isn’t giving the borrower more money than the house is worth in a refinance transaction.
Because the home is used as collateral for the mortgage, lenders want to ensure that homeowners are not taking on too much debt. The lender will sell the house to repay the money it loaned if the borrower defaults on the mortgage and enters foreclosure. In the worst-case scenario, the assessment enables the bank to safeguard itself from loans more than it might be able to recoup.
The Methods Used to Determine Values and the Appraisal Process
Lenders typically request the assessment since it primarily serves to safeguard their interests. The borrower often foots the several hundred dollar expenses for an appraisal.
Current market trends and recent sales of comparable properties impact a property’s appraised worth. A home’s amenities, number of bedrooms and bathrooms, functional floor design, and square footage are additional important considerations when determining the home’s worth. The appraiser must thoroughly inspect the interior and outside of the property and record any issues that negatively impact the property’s worth, including the need for repairs.
What Prospective Homeowners Should Know About Appraisals
One of the first steps in the closing process when purchasing a house and having a contract is the appraisal. The sale goes through as expected if the appraisal results are at or above the contract price. However, the deal may be postponed or canceled if the appraisal results are less than the agreed-upon price.
Most likely, neither the seller nor you want the deal to fall through. The fact that a poor appraisal can be used as a negotiating chip to get the seller to decrease their asking price gives you, the buyer, an edge. The bank will not give you, or any potential buyer more money than the house is worth.
Even though assessments protect purchasers from paying too much for homes, a seller may believe that a low appraisal is unreliable and be hesitant to lower the price. If a poor assessment keeps you from buying or selling a home, consider getting a second opinion via an appraisal performed by a different person. Appraisers can make mistakes or have incomplete information, and bias can influence appraisals. You might also attempt to make a convincing argument to the initial appraiser for a higher value. They might concur with you and change the assessment.
What Home Sellers Should Know About Appraisals
If a low assessment is true, it may be necessary for you as the seller to reduce the asking price of your house to sell it. It’s improbable that holding out for an all-cash buyer who doesn’t demand an appraisal to complete the transaction will result in a higher sales price. Nobody wants to pay too much for a house.
Unfortunately, recent distressed sales in your neighborhood may have decreased the appraised value of your house. If you believe that the selling prices of surrounding short sales and foreclosures have reduced the value of your property, you might be able to persuade the appraiser that your home is worth more if it is in much better shape than those properties.
How Long Does a Home Appraisal Take?
The appraisal procedure typically takes seven to ten days. The appraiser pays a visit to the property and spends an hour or so examining the inside and outside of the house, determining its square footage, and assessing its features and fittings. Additionally, the appraiser contrasts the property with other nearby, recently sold comparable properties (aka “comps”). The appraiser produces an appraisal report after performing the physical inspection and comparing the subject to comparables. The complexity of the appraisal and the appraiser’s workload or schedule determine how long the complete procedure takes.
How Much Does a Home Appraisal Cost?
Usually, home evaluations cost between $300 and $450.5. The cost depends on the home’s location, size, and condition. Appraisers ought to be paid a flat rate or an hourly rate. It can be a sign of unethical behavior and should be avoided if the appraiser anticipates receiving payment as a percentage of the home’s value.
What Happens After the Appraisal?
Mortgage underwriting follows the completion of the home appraisal. The underwriter examines the loan file to ensure everything is in order and all necessary documents have been presented. After evaluating the loan’s risk, the underwriter decides whether to approve or deny the loan based on all available data.
What Reduces the Value of a Home?
The location of the house has the most influence on its value. For instance, the value will suffer if the house is located in a bad area or close to power lines, a busy street, or a junkyard. Although the property’s location cannot be changed, other elements can be changed that could affect the home evaluation. For instance, you can improve your home’s curb appeal, ensure it is clean and organized, and handle minor repairs and ongoing maintenance tasks.
The home appraisal is another item to cross off a closing checklist when everything goes according to plan. The purchase may be postponed or even abandoned if the appraisal value is lower than anticipated. No matter what circumstance you come into while purchasing, selling, or refinancing a property, having a fundamental understanding of how the appraisal process works can only be advantageous, especially if this is your first home.