What is an Appraisal?
An appraisal is the unbiased opinion of a home’s value by a certified professional. Appraisals are most frequently used in the buying, selling, and refinancing transactions of a property to help determine whether the offer price of a property is on par considering the condition, features, and location of that property.
What is an appraisal for lenders?
It lets them know that the borrower will have a loan that matches the home’s current market value. In cases where the borrower defaults on their loan; the lender can recoup the remainder of the loan by selling the house when repossessed.
Who Pays for an Appraisal?
Home buyers typically pay for an appraisal if they need a mortgage to complete the purchase, though some contracts ask that the seller reimburse the buyers for the appraisal at closing. If you are refinancing your home, you will pay for the appraisal when it takes place, although you may be able to add the cost into your home loan.
How Do Appraisers Determine the Value of a Home?
An appraiser considers all physical aspects of the property in their estimate, including the age of the home, number of bedrooms and bathrooms, square footage, condition and style, size of the lot, comparable sales of area homes, and more. They do not consider the décor or furnishing, although if dated, they may detract from higher offer prices. What’s more, the appraiser must do a complete visual inspection of the inside and outside of the home, and indicate any conditions that may adversely affect the property’s value, such as necessary repairs or building code violations.
Appraisers must provide a rating that indicates the condition and structural integrity of the property. This rating is based on a formula from the appraisal governing body, and it too can affect the value of the home.
Who Orders the Appraisal?
Because it mostly protects the mortgage lender’s interests, the lender generally orders the appraisal from a qualified and certified professional. The individual should be licensed and familiar with the locale. Additionally, federal policies stipulate that the appraiser must be impartial and objective, and cannot have any interest, direct or indirect, in the transaction.
To complete their assessment, appraisers use the Uniform Residential Appraisal Report from Fannie Mae to assess single family homes. In the report, the appraiser needs to describe the interior and exterior of the property, the neighborhood, and comparable sales in the neighborhood. The appraiser analyzes their findings and provides conclusions about the property’s value based.
Who Can View the Appraisal Report?
Usually, only the buyer receives a copy of the appraisal. This tends to happen at least three days before closing, and this is several days after the lender receives their copy. The seller and real estate agent only receive a copy of the appraisal if the buyer authorizes its distribution in writing.
You will get a copy of the appraisal if you are refinancing.
What Happens if the Appraisal Value is Lower than Expected?
If the appraisal value is a lot lower than the sale price, a seller can either withdraw from the contact or renegotiate the sale price, depending on the wording in the contract. The buyer is also allowed to appeal the value.
If you are refinancing, you also can appeal the value if you have information that will help increase the appraisal value. This information can include additional comparable properties that sold for a higher amount, or if you found mistakes in the report, such as incorrect square footage.
Even if your home is in great condition, foreclosures and distressed sales can reduce the appraisal value of your home.
What You Can Do Before an Appraisal
If you are a seller, there are tasks you can do before even listing your home to help increase its value. Basic chores such as adding fresh paint to a deck, or cutting overgrown trees and bushes can do a lot. Making necessary repairs, adding updated light fixtures, and de-cluttering all areas, including a furnace room or basement, will also help. If you have already repaired or renovated your home, keep the receipts so that the appraiser and potential buyers know that quality work was done.
A Final Thought
What is an appraisal? When the transaction proceeds smoothly, an appraisal is simply another item to complete during the home buying or refinancing process, while a lower-than-expected value can delay or even cancel the transaction. But no matter if you are buying, selling, or refinancing, having a basic understanding of what is an appraisal can only help you during the largest financial transaction you may ever make.