Whether you’re a buyer or a seller, you need to understand how the home appraisal process works and how it determines the value of a property. This is far from the most glamorous part of buying or selling, but it is one of the most important. It’s an area that is easily misunderstood and causes a lot of problems, when people don’t fully understand the process. Below, we’ve broken down exactly what home appraisal is and what you need to understand about it.
What Are Home Appraisals?
An appraisal is an unbiased professional opinion of a home’s value. They are almost always used in purchase and sale transactions, to determine whether the homes contract price is fair given the homes condition, location, and features. For lenders, it is important for making sure that the homeowner is not borrowing more than they need for a property. Should the borrower default on the mortgage and go into foreclosure, the lender can recoup the money by selling the home. A home appraisal will tell a bank or lender how much a property will sell for, in the event of a worst-case scenario.
It’s A Snapshot Of The Value
Homes values go up and down all the time, depending on the market and many other external factors. When you get an appraisal, you’re getting a snapshot view of the property’s value at that time. That can go up or down depending on many factors over the coming months or years. So, it’s important to bear that in mind when having an appraisal done.
The Difference Between Appraisal And Inspection
These two are sometimes mixed up, usually because their jobs seem very similar to one another. The difference is in their objectives. A home appraiser will take a walk around the home and determine the value of a property. The inspector usually walks around the home looking for defects. Usually, if a home appraiser notices a problem like water damage or pest infestation, they will ask for an inspector to work out the potential costs. To put it more simply, appraisers work on the assumption that everything is in good working order, whereas inspectors must verify functionality.
How Do They Estimate The Value Of A Home?
State law requires that the home appraiser must be impartial and have no direct or indirect interest in the transaction. It’s also required that they be fully licensed and have experience appraising similar properties in the same geographic area.
The value of the home is influenced by recent sales of similar properties in the locality and by current market trends. The home’s amenities, number of rooms, square footage and other things also determines its value. The home appraiser must inspect the entire interior and exterior of the home and note any defects that could affect its value.
Who Pays For It?
Normally, it’s the seller that will pay for the home appraisal at closing. Fees can cost anywhere up to $400, while the national average price for a home appraisal is $327. Before it only took a couple of days to complete an appraisal but now, due to changes in federal guidelines, it can take up to a week or more.
Option For A Second Opinion
If you disagree with the appraisal value you have the option to seek a second opinion by a different appraiser. If you are refinancing a mortgage, a low appraisal can prevent you from refinancing your home. However, if your current mortgage is an FHA mortgage then you can refinance without an appraisal through the FHA Streamline program.
If everything goes smoothly, then home appraisal is just another box you need to tick off on a loan-closing checklist. Regardless of where you stand on the transaction, whether you’re a buyer or seller, a good understanding of the home appraisal process will ensure things go smoothly and in your favor.