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When sellers and buyers agree on the price of a home, it’s a done deal, right?
Not until the appraiser weighs in.
Unless it is a cash-only home purchase, an appraiser is an impartial third tiệc nhỏ who can confirm or complicate the khuyễn mãi giảm giá by providing an evaluation of the home’s value. Lenders rely on professional trang chủ appraisals to determine whether the home is at least equal to the value of the agreed-upon price.
What Is a home Appraisal?
A trang chủ appraisal is a value analysis of your property from a certified or licensed appraiser hired by the lender during the home purchase or refinance process.
The lender needs an accurate appraisal of the property because it is providing a mortgage loan and wants to lớn make sure it isn’t giving too much money to the buyer. The appraisal is also important khổng lồ the buyer & seller because an appraisal value that comes in lower than the agreed-upon price could prompt a buyer to reopen price negotiations.
An appraiser typically evaluates the property–exterior and/or interior–conducts research and addresses any special requests from the lender.
A buyer pays the cost of the appraisal, which is usually several hundred dollars.
A Look at the Appraisal Process
The appraisal takes place as early as possible after the two parties agree on a price, khổng lồ allow enough time to schedule a property visit & production of the report. A lender will select a trang chủ appraiser who will contact the seller lớn set a time & date for a home visit.
A uniform residential appraisal report—which generally resembles this template from Fannie Mae, a government-sponsored company that backs many mortgages—usually relies on these factors:
An appraisal inspection. Traditionally, appraisers reviews both the exterior & interior of a home to make sure it is in good structural shape, to lớn confirm there are no safety issues, to lớn make cảnh báo of the number of rooms and to see if there have been major upgrades since the last real estate transaction. The appraiser usually takes photos of the various parts of the home during the walk-through. The appraiser handles the trang chủ visit individually, but homeowners might be present, especially if they are still living in the home. Buyers can request khổng lồ be present, although it’s not common.
Appraisal visits for government-backed loans can differ from those for conventional loans. For example, an appraiser who is compiling a report for an FHA-backed loan needs to test utilities and appliances khổng lồ make sure they are in working order, per government rules. VA loans have a similar list of requirements for an appraisal.
Concerns about the coronavirus have changed the appraisal process, at least temporarily. For example, the appraiser might be allowed to vày an alternative appraisal, which could rely on an exterior inspection combined with photos and/or videos of the interior of the home from the seller.
Research. An important part of the appraiser’s value determination is the price of comparable homes sold recently in the property market. The most relevant ones have many of the same characteristics as the trang chủ in question và are in the neighborhood or one nearby.
To get comparative information, appraisers typically reviews government records as well as home sale information from the Multiple Listing Service (MLS). MLS is a real estate database that includes trang chủ listing & sales information posted by real estate professionals. Although the database is technically private, much of the information is available online for free.
Valuation approach. The appraiser could decide that the sales comparison approach is the most appropriate way to lớn assess value or could take a cost-based approach, which is an estimate of what the cost would be lớn build the home today combined with the value of the land.
Home Appraisal Vs. Trang chủ Inspection
Home appraisals are different from home inspections because they are conducted to determine the value of a home for the benefit of the lender. Home inspections are focused on the buyer’s interests và the home repairs needed before completing the purchase.
During the closing process, the buyer will find and hire a trang chủ inspector, who will conduct a thorough review of each part of the home, develop a detailed report covering the interior và exterior & make recommendations about what might need lớn be fixed or updated.
After the home inspection, it is up to the buyer & the buyer’s real estate agent to bring up any concerns found during the trang chủ inspection. Repairs could be made or paid for by the seller, or the two sides could negotiate compensation for the buyer to fix any issues after move-in. The trang chủ inspection does not involve lenders at all, unless the buyer decides to cancel the sales contract because of the results of the inspection.
Decoding Your trang chủ Appraisal Report
When you get your home appraisal report, you’ll likely jump lớn the page that includes the final appraisal value. If the value is the same or very close lớn the proposed sales price, there shouldn’t be any complications with the loan.
However, appraisal issues were responsible for 18% of trang chủ purchase closing delays and 9% of terminated contracts in June 2020, according to a National Association of Realtors study.
The report will include:
The value, including the definition of value—such as market value—and its effective date (the appraisal is usually good for four months)Characteristics of the property, including its features và conditionBackground on the market, the home location and the information—including comparable property—that back up the appraiser’s value determinationSpecial instructions from the lender or other related agenciesThe report is usually sent khổng lồ the buyer when the lender gets it, at least three days before the closing date.
How khổng lồ Challenge a trang chủ Appraisal Report
If you feel you received a low appraisal và want lớn challenge the conclusions in the report, you can contact the lender. It’s best lớn send the information in writing, & it’s possible a revised appraisal could be ordered.
Issues lớn look for include:
An incorrect number of rooms and failing to tài khoản for major parts of the home, such as a garageSquare footage listed that doesn’t resemble the actual sizeComparable sales that aren’t located near the trang chủ or that were completed many months agoMajor upgrades that were ignored in the reportIf you choose to lớn get a second appraisal, it can’t be used by the lender as the proof of the home’s value, but it can help make your case against the original appraisal.
How a Real Estate Appraisal Can Help a Buyer
An appraisal is designed lớn satisfy a mortgage lender, but it can protect—or even be beneficial to—buyers, too. An appraisal can:
Confirm the home’s value. This is the usual result of an appraisal. Studies have shown the vast majority of appraisals tư vấn the purchase price. In this scenario, a buyer and seller can continue with the closing process at the anticipated pace.
Give buyers more bargaining power. A low appraisal would slow down the purchase process. Both the buyer & seller are notified of the lower property value, và it could give the buyer a chance lớn renegotiate with the seller. Or, the buyer could walk away from the khuyễn mãi giảm giá because the home’s value doesn’t reflect the proposed purchase price. Buyers who want the property badly enough could shrug off the lower appraisal và pay the seller the difference between the sale price and the appraisal value out of their own pocket.
Boost trang chủ equity. A much higher appraisal gives the buyer more home equity, which is a huge advantage if someone wants to lớn avoid mortgage insurance and get a trang chủ equity loan or line of credit down the road. Also, the seller won’t be aware of the estimate, so there will be no need lớn renegotiate.
Appraisal Tips for trang chủ Sellers
If you’re selling your home, you’ve probably done a lot of work lớn make it look as good as it can, both inside & out. You’re not likely to make major changes in the short period of time between the sale agreement và the home appraisal process.
But you can do some basic cleaning và upkeep khổng lồ ensure the home is still in vị trí cao nhất shape for the appraisal visit. You’ll want to:
Make sure important mechanical devices connected with the trang chủ are working, such as the electric garage door openerEnsure there are no obvious repairs needed, especially ones—such as faulty railings or steps—that could cause a safety issue.Clean up or address problems with the roof & windows or repair water leaks và other issues that could imply there are active problems within the homeConduct basic cleanup inside and outside the house, so it looks as good as possibleHome sellers can possibly increase the value of their home appraisal by giving the property appraiser information about notable property improvements, including a new roof, updated siding, recently purchased furnace or air conditioner unit or an addition.
You’re at risk of lowering the appraised value of your trang chủ if you let clutter take over, don’t address safety issues and have an unkempt front of the trang chủ that limits curb appeal. Also, keep track of sales in your neighborhood, as a cluster of distressed sales in which owners didn’t get market value for their homes could negatively affect your appraisal.
Appraisal Tips for Refinancing Homeowners
Homeowners who are refinancing need to lớn make sure the appraised value hasn’t slipped since they bought the home. Their current mortgage is based on that previous value, so a decrease could possibly make the bid for a new mortgage more complicated or not possible.
For example, if you bought a home for $300,000 two years ago & it’s now valued at $290,000, it will cut the equity you have in your home. The new loan-to-value figure might affect your interest rate & whether you need khổng lồ get mortgage insurance.
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Homeowners also need to emphasize any recent upgrades, which can directly show that the trang chủ has maintained or increased its value.