What to Know About Appraisals
When purchasing a house, you will likely need a home appraisal. What happens when you have a home appraised and what things affect the value? We answer these questions and some other important queries you may have about this critical home buying stage. Having a solid understanding of how the appraisal process works is essential, whether you are buying or selling a home.
Have a look at what you should know about the real estate appraisal process.
What is the benefit of a home appraisal?
The bank will need to be sure that the money they're lending to you is appropriate for the value of the property. They need a house appraisal from an independent professional to let them know the fair market value of the home.
The lender wants to ensure that you aren't overpaying for the property so that they aren't at risk of losing money should you go into foreclosure. The appraiser will use sales data from other similar homes in the area to assess the value. They will also look at the condition of the house and take into consideration the area in which it is situated.
Who conducts the home appraisal?
When the home is appraised, this will be carried out by a licensed and fully trained professional. They will undertake the appraisal in an unbiased way, to make sure that they get the most accurate value of the home.
They will likely have years of experience to draw upon when assessing the property value. Knowledge of the local market will also aid them, along with their training and testing. This is backed up by the requirement for them to provide supporting evidence to prove that their appraisal is as accurate as possible.
Both the appraisers and the companies they work for are regulated. If they were to provide intentionally incorrect appraisals, for whatever reason, they could face severe consequences. This leads to the appraisers making every effort to provide the best valuation they can.
What factors are used to judge the value?
When the appraiser views the property, they are interested in the condition, as well as, the characteristics of the home. This means that they will look at the size of the house along with the lot it sits in. The location and the view available are also factors they consider. The number of bedrooms and bathrooms is noted, with the overall condition of the house playing a big part. You can see a complete list of what a house appraiser will be looking at in the comprehensive article at Maximum Real Estate Exposure.
They don't care about the furniture in the home or the state of the decorations. Only things that are permanently part of the building are included in the appraiser's review of the home.
Is it possible to improve the appraiser's valuation?
If you are selling your house and you would like to improve the result of the appraisal, there are a few things you can do.
While tidying up your home isn't going to directly affect the value. It will give a better impression for the appraiser. Appraisers are humans, too, so you want to make it psychologically easy for them to like your property. Make sure minor issues are taken care of, before getting the home appraised. Things like water stains on the ceiling or cracks in the plaster can show that the house is in a worse condition and should be tackled.
You should ensure that the outside of the property looks the part. Curb appeal will give a good impression to the appraiser and make it worth more. Cut the grass and trim the bushes, fix anything which is broken and make sure the home appears welcoming.
Provide a list of improvements and repairs you have undertaken. Include the costs involved as well as the dates in which the work was done. Make sure you add even the minor things which may not otherwise be noticed. This will show that the house has been taken care of and can only improve the house appraisal value.
Improvements to your neighborhood should also be mentioned to the appraiser. They look at the area your home is located in, with an improving neighborhood being better for your property's value.
Bring the modernization of your home up to the same level. This should make the house appear to be newer than it actually is, and more modern properties are going to be worth more.
Can you do anything if you don't agree with the appraisal?
If the assessment given by the appraiser doesn't seem accurate or fair to you, it is possible to challenge their report. Perhaps there is some information which wasn't properly considered at the time. If this is the case, you need to provide the supporting documents to the lender for them to assess. Appealing a real estate appraisal, however, is not an easy task. More often than not, an appraiser will not change the value of their appraisal.
The circumstances most likely to cause a change in the value is if the appraiser made a gross error on something like the square footage of the home, the number of bedrooms or baths, or some other factor that could significantly influence the value.
When a real estate appraisal comes in low, you will want to huddle up with your real estate agent or REALTOR and find out the reason why it has happened. Your agent will first need to figure out if the comparable sales used by the appraiser are genuinely similar. Sometimes when an appraiser is not from the area, they will use homes that don't really reflect well with the subject property. The most common mistake is not appropriately valuing different regions of a city or town.
The next thing an agent should do is look for any potential errors in the report. It is not that uncommon for a mistake to be made. Appraisers are just like the rest of us - they do make blunders from time to time.
What happens if the appraiser won't change the value?
When an appraisal value is not changed, there are a few options that can take place as follows:
- The seller can reduce the price to the appraised value.
- The buyer can make up the difference in the shortfall by putting down extra more down payment monies.
- There can be a compromise between the buyer and seller, where they each do something. The seller reduces the price, and the buyer adds more towards their down payment.
If the seller and buyer cannot agree, the buyer more than likely will be able to get their earnest money deposit back because they probably won't be able to procure mortgage financing.
An appraisal is an integral part of most real estate transactions. Unless a buyer is paying cash, the vast majority of the time, a lender will require an appraisal. When buying or selling a home, it is critical to have at least a basic understanding of the appraisal process. Getting a home appraised isn't something you can skip.
If you have any questions about the appraisal, make sure you speak with your real estate agent or your attorney if you are selling as a for sale by owner. Not understanding the appraisal process could cause unnecessary problems.
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- What to know about buying a foreclosure - purchasing a foreclosure property is not for the timid of heart. It is much different than buying a house in a traditional fashion. See expert guidance on purchasing a foreclosed home.
Use the additional resources to make the best decisions when buying or selling your next property.