Whether you are planning to buy a house for the first time or selling the old one to finance the new one, you will come across the process called home appraisal. It is the process of evaluating the property someone is going to buy.
As a home buyer, if the appraisal is lower than expected, it will cost you your time and money. Also, the entire transaction can go off track.
So, it is essential as a buyer to know what this process is and stay informed before you sign any contract. Go through this article to learn everything about home appraisal.
What Is A Home Appraisal?
A home appraisal is a professional and objective assessment of a home or a real estate property. A home appraisal aims to find the accurate and fair value of a house or a real estate property. This ensures that the mortgage lender does not have to lend more than what a residential property is worth. More so, a buyer does not have to pay more than the fair market value of a house they are about to buy.
Home appraisal requires a professional real estate appraiser to work to assess the price of a residential property. A borrower has to use their house as collateral for getting their mortgage. So, the appraisal must be significantly accurate.
Also, when a homeowner is trying to refinance their mortgage, their lender will surely appraise the house before lending any money.
How Does Home Appraisal Work?
Real estate or home appraisal is not an easy job. It requires professional real estate appraisers to assess the value of a property. An appraiser must have a valid license to make an appointment to visit the property. They can see the property in person or want to appraise the house remotely.
First, they physically assess the property and analyze its conditions. Then, they compare the house with the recent sales of similar properties in the same area. They use a variety of sources to gather information for home appraisal. These sources include multiple listing services, local real estate agents, tax records, and county court records.
Aside from all these factors, a real estate appraiser can also consider the neighborhood in which a property is located. Newer homes commonly appraise higher in a growing subdivision than the older homes in the community.
Here is a step-by-step process for a house appraisal –
Lender Orders For Appraisal
So, if you are purchasing a new residential property, the lender will ask for an appraisal before lending you money for a mortgage. This happens once your order is accepted and you have signed the agreement to purchase the house. For refinancing, the lender will ask for an appraisal once you apply for a new loan.
Value Assessment Of The Property
The real estate appraiser now appraises or evaluates the price of the house you want to purchase. They usually visit the house in person and do a thorough assessment of the property from the inside out. The process might take from 30 minutes to a few hours. It depends on the size and the condition of the house.
Reviewing Comps
The next step in the line of the process is to do a market analysis. An appraiser usually goes through the public records or conducts market research to find out what the house is worth. Most of the time, they go through similar properties in the market.
Delivering A Report
An appraiser now puts together a report to provide the value of the asset according to its quality and market value. They will usually create a Uniform Residential Appraisal Report and provide it to the mortgage lender. The home buyer or the borrower is entitled to receive a free copy of the appraisal report before the loan is sanctioned. The borrower must read the appraisal report thoroughly. They can let the lenders know if the report is accurate or not.
Things A Home Appraiser Looks For
When determining the value of a home, a home appraiser looks for many things. Some of them would include –
- Property’s location.
- The property’s surrounding neighborhood (urban, rural, or suburban).
- Square footage (both of the property and the lot).
- The property’s layout.
- Different hazards like a flood or different other conditions.
- The property’s age and the condition of the roof, the walls, and the overall structure.
- Current conditions of the different appliances remaining in the house.
- Different amenities are present at the property. Amenities would include – a fireplace, swimming pool, or a deck.
- Sales trends and price ranges for similar homes in the neighborhood.
Also, in some cases, the appraiser can look for possibilities of rental incomes or fees related to the property.
How To Prepare For Home Appraisal As A Homebuyer?
If you are a home buyer, then you can take these possible precautions or tips to help yourself during a house appraisal.
Know About The Contingencies
If your appraisal appears to be lower than what you expected, you can walk away from the deal. Most of the home appraisal agreements have these contingencies where the buyers can walk away from the deal. However, be sure to carefully go through the contingencies before agreeing to a contract to buy your home.
No Need To Feel Pressured To Make A Higher Offer
Sometimes, the competitive market can make someone offer more than what the property is worth in the market. Also, if you do not have any extra cash on you, there is no need to overexert yourself by trying to cover the difference between the offering and the real appraisal value.
You Do Not Control The Outcome
When you are buying a home, you do not have much control over how the home appraisal might turn out. So, it is okay to accept the outcome of the appraisal. But when you start the process of purchasing the property, remember all the contingencies you have in place. This will clear your way out if anything were to go wrong.
Final Words
Home appraisal, as an objective evaluation of a property, is really important to the home-buying process. The process concerns the borrower, the mortgage lender, and the property seller. Most of the time, home lenders order an appraisal during the mortgage.
If you are purchasing a house, this article should help you understand the importance and the process you will witness during the purchase. Also, as a buyer, always remember your contingencies if the buying process were to go wrong.
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