The home appraisal process is a critical step in the real estate journey, whether you’re buying, selling, or refinancing a property. It allows lenders to make sure that a property is worth the amount being loaned. It also gives buyers the confidence that they are purchasing a house for a fair price.
Homeowners can improve their chances of a high appraisal by making necessary upgrades and providing proof of any improvements, like sales receipts. A desirable location and neighborhood amenities can add value, as well.
What is a Home Appraisal?
Home appraisals are an essential part of the buying and selling process. These evaluations provide a professional’s unbiased assessment of a home’s value. Lenders typically request these assessments before issuing mortgage loans to ensure that borrowers don’t borrow more than a home is worth. This protects the lender in case a borrower defaults on the loan and the home is repossessed.
During an appraisal, the home’s location, condition, and size are considered. In addition, the property’s unique features are evaluated. These may include a swimming pool, a garage, or other amenities. The appraiser also considers market trends when determining a home’s value. For example, a neighborhood could see an increase in demand that boosts the price of nearby homes.
Buyers and sellers are usually allowed to accompany the appraiser during the home inspection. This can give the homeowner the opportunity to point out any upgrades and improvements that boost the property’s value. However, these changes will only be deemed valid if they are permanent fixtures. Otherwise, they will not be factored into the final appraisal valuation. This is why it’s important to do your research before making any significant renovations. It’s also a good idea to have documentation for any upgrades and repairs from a contractor or real estate agent.
Why is the Home Appraisal Process Important?
Whether you’re buying a home, selling a home or refinancing your mortgage, the home appraisal process is an essential step in the mortgage loan process. This is because the mortgage lender needs to know how much the home is worth, so that they can determine how much they are willing to lend.
The home appraisal is usually done by a professional and includes a detailed inspection of the property. During the inspection, the appraiser will check for safety issues, make note of any major upgrades or renovations and take photos of the interior and exterior of the home. Buyers and sellers can request to be present at the home appraisal, although this is uncommon.
If the home appraisal value comes in below the sales contract price, the mortgage lender will not fund the loan unless the buyers are willing to pay the difference in cash or walk away from the purchase. This is why many buyers include an appraisal contingency in their home buying offer. However, some lenders may waive the onsite appraisal requirement and use existing data to estimate a home’s value. This is more common with a VA or FHA loan. However, if this is the case, an escrow company will be required to oversee the transaction.
How the Home Appraisal Affects Buying and Selling
Homeowners should remember that the selling price of a home and its appraised value are two different things. Just as a candy bar can sell for $15 but is only worth $1, the selling price of a home may be higher than its actual value. This discrepancy can cause problems when a home is purchased or sold.
When preparing to sell, homeowners should make any necessary upgrades that will boost the property’s appraisal value. This can include upgrading outdated appliances, providing proof of recent home improvements, and improving curb appeal. For instance, having a large garage with off-street parking will increase the value of a home in cold weather climates, and extra closet space is always desirable for buyers of all lifestyles.
Having the right mortgage insurance coverage also plays a role in boosting a home’s appraisal value. Some mortgage types, like government-backed loans, require specific features that can boost a home’s value, such as pest control and safety features on stairs and railings.
When a home appraisal comes in lower than the seller’s asking price, the buyer may be able to back out of the deal or negotiate a more reasonable sale price. Alternatively, the mortgage lender may refuse to lend money for the loan amount based on the low valuation, and the buyer will need to bring more cash to the closing table or borrow money from another source.
How Much Does a Home Appraisal Cost
The cost of a home appraisal depends on the type of property being appraised and its complexity. For example, an apartment building will take more time to evaluate than a single-family home. This will generally result in higher home appraisal fees.
In addition, unique features like large square footage or inaccessible roof spaces can impact the amount of work needed to complete a home appraisal, affecting the final cost. As a general rule, a typical home appraisal costs between $300 and $400.
Generally, the home buyer pays for the appraisal since they are the party financing the purchase with a mortgage loan. However, in some cases, a home seller may be responsible for paying the home appraisal fee as well. Regardless, homeowners can help to keep home appraisal fees lower by making sure that the house is well maintained and clean before the appraisal. In addition, preparing a list of any recent renovations or upgrades can help to improve the overall valuation of the property.
What Homeowners Can Expect During an Appraisal
Home appraisals are one of the first steps in a real estate transaction. They help ensure that a buyer is paying a fair price for the property and that mortgage lenders aren’t lending more than worth of the home. The process is also important for homeowners who are refinancing their mortgages, as a high home appraisal value can mean lower loan costs and possibly eliminate the need for private mortgage insurance (PMI).
When conducting a home appraisal, the appraiser will look at several factors to determine its value. These include the home’s features, location, and comparable sales. The condition of the property also plays a role in its value. Make sure your home is in good condition and free of clutter. Also, consider making any necessary repairs or upgrades before the appraisal to maximize your investment.
The appraiser will also likely test all appliances that are included in the sale of the property, such as running a dishwasher cycle or turning on the oven. In addition, they will examine the property’s exterior to evaluate its curb appeal. While buyers and sellers can ask to be present during the home appraisal, it is more common for only the appraiser to attend.
Common Issues That May Arise During Home Appraisal
Homeowners can take certain measures to improve their chances of a positive appraisal. For example, they can boost curb appeal by trimming overgrown bushes and making basic repairs like fixing leaky faucets. They should also keep records of any major improvements, such as a new roof or updated siding.
Market trends and conditions are other factors that may affect the value of a home. For instance, if the number of buyers exceeds the number of sellers in a particular area, it can lead to higher prices because there is more competition for available homes.
On the other hand, if there are more sellers than buyers, home values can decline because there is less demand for property. In addition, unique features of a house can also affect its value, such as a swimming pool or garage.
Other issues that can arise during an appraisal include the property’s condition, the number of bedrooms and the amount of yard space. For example, an older home with many rooms might have a lower value than a newer home with an open floor plan. Also, a house with few bedrooms might not be desirable in a family-oriented neighborhood.
Can a home appraisal be challenged?
If you believe the appraisal value for your home is wrong, you may want to consider challenging it. It can be frustrating for both buyers and sellers when the property’s appraised value is lower than expected. Buyers could potentially walk away from the deal or struggle to obtain mortgage financing, while sellers can find it difficult to sell their home at the higher price they were hoping for. There are several reasons why an appraisal might come in low, including inaccurate information or mistakes. For example, the appraiser might have miscounted the number of bedrooms or compared your home to inappropriate comparables.
If you feel that the information in your home’s appraisal is incorrect, it is important to do your research and compile evidence before submitting a challenge to the appraiser. You can start by requesting a copy of the appraisal report. Once you have a copy, you can begin the process of disputing the appraisal with your lender. This involves submitting additional documentation that shows the errors and omissions in the report, such as photos of recent home improvements or additional details about the neighborhood. It’s also important to be polite and respectful when submitting your challenge.
Difference between Home Appraisal and Home Inspection
While both processes involve examining the property, they have different goals. An appraisal looks at the property’s overall condition, evaluating the home’s value against comparable homes in the area and looking for issues like structural damage, leaky roof, etc. A home inspection looks at a property’s integrity, checking things like electrical and plumbing problems and whether the building meets code compliance.
A mortgage lender requires a home appraisal as part of the borrowing process to determine if a property is worth its selling price. An appraiser will take into account the home’s location, size, and any features that add value, including a pool or updated kitchen.
Buyers can benefit from a home inspection by learning about potential issues that may affect their purchase decision. If a home inspector finds significant problem areas, buyers can choose to walk away from the sale, negotiate with the seller, or make repairs.
A home appraisal typically happens within a week after your offer is accepted, but can be done earlier in the escrow process. Depending on the results, you may be able to avoid paying PMI by having enough equity in your home. A lower than expected appraisal, on the other hand, could mean a higher closing cost or additional expenses to make necessary repairs.
Tips for Preparing Your Home for an Appraisal
Homeowners can make a few simple changes to their property in the weeks leading up to an appraisal that can increase its value. Taking care of small things like repairing broken lights or fixing cracked windows can help the appraiser see that the homeowners have been proactive in keeping up with maintenance and upgrades to their home.
Clutter can also detract from a property’s value, so it’s important to clean and declutter the interior before the appraiser arrives. This can include cleaning out closets, removing excess furniture, and donating any unused items. A tidy exterior is also a good idea – pulling weeds, cleaning the driveway, and trimming bushes can all make the home appear well-maintained.
It’s also a good idea to provide the appraiser with any documentation of property improvements. This may include receipts for recently completed repairs, before-and-after photos of remodeling projects, or contractor estimates. Additionally, providing the appraiser with information about nearby amenities can also increase a home’s value. For example, a nearby hospital, university, or luxury shopping center can make the area more desirable and drive up property values.