What is your home worth? What should you pay for your new home? While you can check your estimated value on a bunch of different websites for free, we recommend you tap the expertise of someone who can give you a more definitive answer of your home’s value based on similar properties in the market. That person is called an appraiser. Now let’s learn more about the appraisal process!
Who is an Appraiser?
An appraiser is someone who is certified in doing research and determining the fair value of homes. They determine a home’s value based on square footage, lot size, features, finishes, and other unique things about it. In addition to what makes up the home, the appraiser looks at the surrounding area. That includes school districts, the city, and other outside influences. An appraiser is a key player in the purchase or sale of a home.
A buyer’s lender typically requires that an appraiser comes to confirm the contract value of the home. This is all done to make sure that the buyer isn’t overpaying for the property and the lender has adequate value to cover the loan amount.
Sellers sometimes bring in appraisers to help them price their home right, but it is not necessary and many real estate agents help seller’s price their home. Some brokers even have dedicated pricing specialists to do the important work of determining the right list price.
What Happens During an Appraisal?
The appraiser evaluates the home in question by reviewing all the important stuff, as listed above. If housing prices were stable over time, the job would be done at that.
The reality is, the housing market fluctuates. To assess the strength of the housing market in the home’s specific area, the appraiser will research the prices of homes sold recently in nearby neighborhoods. They will look at the homes comparatively based on what they had to offer buyers.
How Much Does an Appraisal Cost?
Home appraisals typically cost between $400 and $500.
Appraisals are usually requested by the lender after the home is under contract. However, if you’re selling and are not sure where to price your home, you can purchase one early. A good option for this is the economical desktop appraisal.
Sellers who use Homie are provided with a value report, which is like a desktop appraisal. This service is performed by a dedicated pricing specialist who uses comparable home sales and local market knowledge to determine the value of your home. Unlike a full appraisal, a value report does not include a visit to your home and does not replace a full appraisal for a buyer who is planning on taking out a home loan.
Do I Need to Get a Home Appraisal?
Federal regulations require lenders to hire an independent appraiser for each new loan, which means that buyers must have the home appraised even if the seller has already had it appraised.
Home inspections are often confused with appraisals, but they are separate and performed by different licensed companies. A home inspection is conducted by an inspector who checks the build of the home to make sure everything is in good working order. They look over everything from roofing to plumbing and door jams to light switches.
They don’t assess the value of the home. An appraiser for example, may use the condition of the home to determine the value but the inspector will tell you exactly what’s broken and needs repair.
What to Do for an Appraisal
If you’re selling your home, you want to sell for the highest amount possible. This means when it’s time for the lender appraisal, you want to show the home at its best.
On the day of the home appraisal, be your home’s best advocate. Jot down a list of any improvements you’ve made to the home, like upgraded counters or a new water softener. Leave this list for the appraiser.
Make sure the lawn is mowed, the house smells sweet, the blinds are open and the surfaces aren’t cluttered. Theoretically, little details like this shouldn’t affect the price of a home, but you want to make a good impression. Don’t worry about a large renovation like finishing a basement but if you were going to repair something anyway now would be the perfect time. Most often large renovations or repairs don’t increase the value of your home by as much as they cost to complete. Instead, focus on showing off what’s already there and making sure that every part of your home is clean and in good repair.
What Happens After I Get an Appraisal?
Good question. Once the appraisal is complete, it is sent to the buyer’s lender or bank. In cases where the buyer is putting a relatively small down payment on the home (less than 20%), banks will approve loans only when the estimated appraisal value is the same or greater than the sale price of the home.
Sound confusing? Let’s talk about it.
Imagine a house gets an offer of $300,000 but only appraises for only $250,000 and the buyer is only putting 10% down (in this case $30,000)The bank may not fund a loan for the home at the higher asking price. It will not lend $300,000 for a house that, in the case of a default, might only sell for $250,000 because that would leave the bank short on its investment.
If you are in the process of purchasing a home and the home appraisal comes back lower than the negotiated sale price, you have some options.
What happens if you really want the house? Many buyers will try to renegotiate the sale price if the appraisal comes in low. If the seller is unwilling to lower the price, buyers can walk away. If the buyer is still absolutely in love with a home they can choose to increase the down payment amount so the lender approves the mortgage. Adding to the down payment decreases the amount the bank has to fund for the home.
If the appraisal comes in low, you should consult with your real estate agent about your options.
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