Everything You Need To Know About Appraisals and Real Estate Value Assessments
Home appraisals are a key step in any home buying or selling process. Most financial institutions will not lend to buyers without an appraisal, and most sellers use appraisals to know what their home is worth. An appraisal is an unbiased assessment of a home’s value, and helps protect buyer, seller, and lender. Here’s everything you need to know about home appraisals, so you can be as prepared as possible throughout the process.
The 411 on Appraisals
What Is a Home Appraisal?
A home appraisal is an educated, unbiased assessment of how much a property is worth, performed by a licensed and trained appraiser. An appraisal protects both homebuyers and sellers, because it ensures a home is selling for a fair price.
All lenders require an appraisal during the mortgage loan process. No financial institution will lend money for a home without an appraisal. A bank doesn’t want to lend a buyer $100,000,000 for a home only worth $100,000. A homebuyer doesn’t want to purchase a home worth much less than the asking price, and a seller doesn’t want to undervalue their home. That’s why appraisals are a necessary protective measure for both parties. The home appraisal occurs after the initial offer has been accepted by the seller, and lenders send appraisers to homes before the mortgage process can be completed.
Who Are Appraisers?
Appraisers are highly trained, licensed professionals. They are taught how to fairly and objectively determine the value of a home in the state our county where the property is located. It takes about two years of study, including 3,000 field hours, to obtain an appraiser certification, so you can generally trust that the person appraising your home is experienced and qualified. Appraisal management companies are also regulated by the government and can face harsh consequences for producing biased reports. That said, sellers have the right to ask for the appraiser’s credentials. If they typically work outside the area (which is very rare), sellers can ask the lender to send another appraiser.
Appraisers typically work through the broker to make appointments to inspect the property. Brokers are also responsible for providing any required information to appraisers.
What Do Appraisers Look For?
Appraisers evaluate the condition of a home and everything permanently attached to it. They do not evaluate furniture or decor. A home’s age, square footage, number of bathrooms, number of bedrooms, location, and condition are the main characteristics evaluated. Home appraisals compare the square footage and number of rooms to other properties of similar size that have recently sold in the same area. They look at the condition of exteriors, like the foundation, paint, roof, windows, door, garage, driveway, patios, and pools. Inside the home, they look at plumbing, electrical wiring, heat and air conditioning units, the water heater, damage to walls or doors, windows, tiling, carpeting, lighting units, mold issues, and fixed kitchen appliances.
What Does a Home Appraisal Cost?
The seller usually pays for the home appraisal. According to HomeAdvisor.com, the national average cost for a property appraisal is $328.
Home Appraisals vs. Home Inspections
The two are often confused, but home appraisals and home inspections are not the same thing. Inspectors look for defects, while appraisers look only for the value of the home. Appraisers can ask for inspection if they notice signs of wiring or leaking issues.
Possible Results of Home Appraisal
Ideally, an appraisal will come in at or above the contract price, and the transaction will proceed as planned. If the appraisal comes in lower than the contract price, the buyer can withdraw the offer and have their deposit returned, or the seller can lower the price.
What Can a Seller Expect From the Appraisal Process?
If a seller has made any improvements to the home within the last five years, they should make a list of them, including receipts. This file should be given to the appraiser before they enter the home, so they can verify the information and take it into account during the appraisal.
The appraiser will enter the home and make a detailed analysis of its value. This will be compared to recent sale prices of comparable properties in the area. Note that the neighborhood plays a large role: even if you spend a large sum on improvements, if the neighborhood is full of homes in a certain price range, it’s hard to move your home’s value significantly above that range. After the walk-through, the appraiser will deliver a detailed report of the home’s value and any factors affecting it.
The bottom line is that if a loan is needed to purchase a home, a home appraisal will be a requirement. If you’re selling your home, trust your broker to deliver information to the appraiser and set appointments for the assessment. Your broker can also help you understand exactly what appraisers are looking for, and can help you get your home in order before their visit, one of many reasons why it’s important to partner with a broker and real estate legal team you know you can trust.