In the current financial climate, loans and mortgages are harder to procure. Lenders want to know if their money is being invested wisely and if they’ll be able to recover the cash if the borrower is unable to pay. Home buyers want to invest in valuable projects that guarantee a healthy return when it is time to sell. And home sellers want to get the price they deserve. The good news is that there is one document to answer all these queries: an appraisal report. Home appraisals guarantee that all those involved are aware of what they are investing their money in.
So, what exactly is a home appraisal?
Home appraisals are unbiased estimates of the market value of a home. This means evaluating the permanent fixtures of a home and not the decor. Because this report will be used to procure funding, it needs to be carried out by an objective and qualified individual. To ensure reliable reports most states require real estate appraisers to be licensed. It also helps to have an appraiser with some familiarity in the local area.
What is the process and how are prices determined?
If you’re buying the property, you’ll have to handle most of the arrangements. Even though the appraisal is mostly for the lender, you’ll have to find an appropriate appraiser that the lender approves of, as well as cover the costs involved. As of 2018, the average cost of a professional appraisal ranges between $300 and $400.
The appraiser typically takes between three and ten business days to process an appraisal. During this time the appraiser compares the property being sold to similar properties sold in the area over the past 90 days. These numbers are then adjusted according to the unique features of the property being sold.
What elements are evaluated during home appraisals?
- The exterior. The foundation, walls, and roof are three important elements in a home. Because these aspects define the reliability and functionality of a dwelling, an appraiser will pay particular attention to these.
- The size. Most clients are interested in acquiring as much space they can. This means that the square footage of a home will play an important role in how it is valued.
- The interior. If only the exterior is in excellent shape, you are selling a structure. The interior is essential to make the house habitable. This includes evaluating things like the doors, walls, floors, plumbing, electrical, and the condition of your bathrooms and kitchen.
- Home improvements. The value of a home doesn’t end with the original construction elements but also includes all the features you have added. Make sure to point out these features to the appraiser. HVAC systems may add a fixed value to appraisals, but a recently added HVAC system may add double that value.
- Additional features. These details add an extra edge to homes. Things like swimming pools, fireplaces, garages, or security systems are all features that make houses feel more like homes.
What do appraisals tell home buyers?
Appraisals are used to help buyers avoid overpaying for homes, by knowing the value of the home you know what you’re buying and can estimate how it will increase in value. This is usually a step taken during closings to help finalize loans. You could also consider using the services of a title company who will provide title insurance in case the sellers don’t turn out to be who they say they are.
If all goes according to plan, the appraisal should come back valuing the property either at or above the agreed selling price. If the appraisal comes back below the agreed selling price, this is where things will get a bit more complicated and possibly derail the purchase.
Typically, lenders won’t approve a loan for an amount which is more than the value of a home. Most of the time a loan will only cover 80% of the agreed selling price. As the buyer, a low appraisal is a perfect way for you to negotiate for a lower price with the seller. This is, however, rarely the case and most sellers would be reluctant to lower the price. If you find yourself in this situation seek advice from a second appraiser.
What do appraisals tell home sellers?
Before the appraiser to checks your home, you should take the time to prepare your home and be helpful to give a good impression. These things shouldn’t matter, but they do help. If you’ve done all you can and the appraisal is lower than you expected, you might have to consider lowering the price of your property. If you disagree with the results, there are many ways to dispute a low appraisal.
You could begin by finding out what sales were used and refer those to your agent to find out if they were appropriate. You could also employ the services of a second appraiser and see what the difference are.