A home appraisal is a critical component of any real estate transaction that involves a mortgage loan says, ‘Local Records Office’. If you are refinancing you will need an appraisal, if you are selling your home to someone that needs to get a mortgage, he or she will need to have an appraisal done.
What Really Is a Home Appraisal?
A home appraisal is an opinion on value by a qualified, unbiased third party. Mortgage lenders require an appraisal to be completed when you are refinancing your mortgage. An appraisal is also completed in a transaction when someone is buying a home to make sure they have not overpaid for it.
Local Records Office says, “Mortgage Lenders require an appraisal to ensure that homeowners are not overpaying for a property because if the borrower stops paying for the mortgage the lender will take action to remove the borrower from the home and sell it to recoup their money, this is why it is important for the home to be worth more than the money loaned”. In essence, a home appraisal is a lawyer of protection for the mortgage lender.
The Appraisal Process and How Appraisal Values Are Determined
These are the main factors that influence your home’s appraisal value: current market trends which are reflected in the comparable properties the appraiser selects, the house’s features, square footage, number of rooms/bedrooms & bathrooms, condition, is the property considered up to date, landscaping and exterior condition and parking (garage).
The appraiser will do an interior and exterior inspection for the above-noted factors and will also make note of any deferred maintenance, which will be included in the report for the lender.
The appraiser will complete his report on a standard report form that is required by their appraisal jurisdiction. The information that has to be included in an appraisal report will not vary much from Canada to the United States.
A standard report includes the following: comparable sales, a street map, building sketch, square footage, photos of the front, back, and street scene of the home, photographs of each comparable property used; a map showing the location of the comparables in relation to the subject property, plot map, description of intended users of the appraisal report, photo and description of each room in the house.
The cost of a residential appraisal report ranges from $250-$500 and the homeowner is typically responsible for paying the appraiser.
What Homebuyers Need to Know
When you’re buying a home an appraisal could potentially sink your deal. If you make an offer to purchase a house, towards the end of the home buying process your mortgage lender will require that the home being purchased be appraised says, ‘Local Records Office’.
If the home appraises for less than your offer to purchase the lender will not provide the loan, however, this could be good for a buyer as well because you may be able to negotiate to the lower purchase price but very often at the point of the home appraisal in the buying process an agreement of purchase and sale is already in place. If a bad appraisal is standing between you and your home purchase, look into getting a second opinion via a second appraisal. Appraisers are not perfect and it is possible for them to make mistakes.
What Home Sellers Need to Know
As a seller, a low appraisal means that you may have to lower your home’s price to get it sold. Lenders won’t approve loans for more than a home is worth, and holding out for an all-cash buyer who doesn’t require an appraisal as a condition of completing the transaction is unlikely to net you a higher sales price.
No one wants to overpay for a home but more importantly, a mortgage lender will not overlend on the value of a property, therefore if the appraisal comes in lower than what your buyer is offering this will likely sink your deal unless you lower the price.
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