The Home Appraisal Process

The Home Appraisal Process

A home appraisal is when an unbiased professional assesses the value of a home for the purpose of purchasing or refinancing. A mortgage lender wants to make sure the home value matches the home amount because the home serves as collateral for the mortgage. The appraisal value of a home can make or break a sale. As a buyer or seller, it's essential to have at least a general understanding of how appraisals work. Below are a few key points that you should know about real estate appraisals.

Who Is The Appraiser?

The appraiser is a licensed third party who has no financial or connection to any person involved in the home purchase transaction. The lender hires the appraiser through a third party company who are not allowed to communicate directly with one another.

Appraisal Cost?

Appraisals can vary depending on the complexity of the property and area. An appraisal of a typical property is usually around $300-$500.

Why Is It Necessary?

Appraisals are required for any home sale that needs a mortgage. Appraisers use their experience and training to give an accurate view of the value of a home. Lenders demand appraisals before giving out loans to protect themselves. If the buyer defaults on the loan the lender wants to know if they can sell the property and get back their money.

 

What Are Appraisals Based On?

The most common appraisal is when an appraiser visits a property and inspects both the inside and outside of the property. The appraiser will go through every room, take note of all the details and accurately compare the home to other homes to measure its value. When the details are collected, the appraiser researches the recent sales of similar homes and make a comparison to deliver the final appraisal price.

What Should The Appraisal Report Include?

• An exterior building sketch
• Public land records
• Public tax records
• Market sales data
• Front exterior photos of each comparable property used
• Photographs of the home's front, back, and street scene
• An explanation of how the square footage was calculated 
• A street map showing the appraised property and comparable sales used
• Concerns that may be harmful to the property value

What Happens If The Appraisal Is Higher Or Lower Than The Contract Price?

If the appraisal comes back and its lower than the contract price, the buyer and seller must abide by the contract that was already negotiated. If the contract is contingent on the appraisal, you can withdraw your offer and have your earnest money deposit returned. If the buyer decides that they want to continue to purchase the home there are other options such as: pay for a second appraisal, renegotiate the contract if the seller is willing, pay the difference on your own, or ask the seller to finance the gap between the appraisal and the sale price. If the appraisal is at or above the contract price the buyer will have more equity in the property and the transaction proceeds as planned. 

The home appraisal is an important step of the home buying process and knowing how the appraisal process works as a buyer will work in your favor.