A home appraisal is an integral part of any real estate transaction, whether you’re purchasing a property, selling your home to someone, or refinancing an existing mortgage. Setting the right price and getting a solid appraisal are critical steps because all parties financially engaged with a house must have a clear idea of its value.
Appraisals have a lot of clouts, and the outcome can make or break a deal. As a result, it’s critical to make sure that the house is accurately priced. According to a January 2020 survey from the National Association of Realtors, an acceptable appraisal is the main condition for many buyers, with 43 percent mentioning it in their offer.
The home appraisal process can be stressful, especially if you have no idea what goes into it. Let’s take a look at what an appraisal is and how it works.
What Is a Home Appraisal and Why Do You Need One?
The home appraisal is a professional’s impartial evaluation of a home’s value. Appraisals are almost always utilized in sale and purchase transactions, and they’re also employed often in refinance transactions.
An appraisal is used in a sale and purchase transaction to assess whether the agreement price is reasonable given the home’s location, condition, and characteristics.
Because the home acts as security for the mortgage, lenders want to ensure that homeowners are not overborrowing. A home appraisal also helps the bank prevent itself from loaning more than it can recoup.
Who Conducts a Home Appraisal?
Your mortgage company does not do appraisals. Only an independent third party is permitted to undertake a property appraisal, while your trusted mortgage lender can assist in scheduling or arranging the evaluation.
Typically, an appraisal is ordered through an appraisal management company (AMC), which randomly selects an appraiser. According to the Appraisal Institute, a professional group of real estate appraisers, a qualified appraiser should be licensed or certified—as needed in all 50 states—and conversant with the local region.
Your lender can order one of four types of appraisals: full appraisal, exterior only appraisal, rental analysis, and Broker Price Opinion (BPO).
What Factors Affect the Appraisal Value of Your Home?
In the home appraisal process, comparable sales are crucial. These are properties that have recently sold in the same neighborhood as the one being evaluated. Industry professionals typically refer to them as “comps.”
Within a mile of the appraisal home, appraisers seek residences sold in the past 90 days. They take into account several aspects, including:
- Dimensions of the property (square footage)
- Number of bedrooms and bathrooms
- Overall condition of the house (interior and exterior)
- Additions, upgrades, and amenities
After the appraiser has completed their study, they write a formal report that includes a final property appraisal.
The Process of a Home Appraisal
The lender requests an appraisal when a buyer makes an offer and signs a purchase agreement. In the case of a refinance, the lender normally orders an appraisal after the homeowner applies for a new loan.
After the appraiser has performed the site inspection and market study and checked the property’s public records, the appraiser prepares a report known as the Uniform Residential Appraisal Report.
The appraiser is asked to describe the interior and exterior of the property and the neighborhood comparable sales in the report. The appraiser then gives their analysis and findings on the property’s worth based on their observations.
The appraiser may take several hours to a week or more to prepare this report for a residential property. The size, complexity, and condition of the home all have a role.
Is a Home Inspection the Same as a Home Appraisal?
Home inspections are usually performed a few days before the appraisal. An inspection looks at the nuts and bolts of your property for any flaws or difficulties, but an appraisal considers the fair market worth of your house.
The structure, roof, electrical system, plumbing, and exterior of your home are all examined by a home inspector. They’ll go over the inside and outside of your house for any faulty, dangerous, or mechanical issues. They also inspect for bugs and termites. After a home inspection, a report detailing what was examined and what needs to be fixed will be provided for the customer.
Most real estate brokers will highlight how critical it is to price a home right to sell it. The most common reason for properties not selling is due to pricing concerns.
If you are purchasing a home, the appraisal can help you determine if you pay the correct price for the property. After reading this blog post, you now have a much better understanding of house appraisals.