Appraisals Explained
Appraisals are one of the most confusing aspects of buying or selling real estate for the consumer. Is the value of your home what you and the seller just agreed on? When a buyer and seller agree on a sales price, it can be frustrating to hear that the
appraisal came in with a value too low. It’s not enough for the principals to agree to the price,
the appraisal is the lender’s way to ensure they are not loaning money over the actual market
value of the property.
What does the appraisal cost and who pays for it?
While your lender will typically arrange for an appraisal, the buyer is ultimately responsible for the cost. Don't let this cost stop you from making offers: The home appraisal will only occur after your offer has been accepted by the seller and you have begun to work with a lender to finance your new home. You do not need to complete appraisals on every house you choose to bid on.
While your lender will typically arrange for an appraisal, the buyer is ultimately responsible for the cost. Don't let this cost stop you from making offers: The home appraisal will only occur after your offer has been accepted by the seller and you have begun to work with a lender to finance your new home. You do not need to complete appraisals on every house you choose to bid on.
The appraised value is reached by a licensed professional who looks at the real estate market
in which the target property is located. In most residential property transactions you are able to choose your real estate agent and your lender, but you cannot choose your appraiser. Instead the appraiser must be chosen by your lender to provide a level of independence from the buyer and seller.
They start with the target property and then look for
recent sales in the area of comparable properties. These comparable properties will be located
within a short distance of the target home, normally within a 5 mile radius. They should also
be of comparable size and often fall within the same housing development.
Once these homes are identified, the appraiser will adjust for the specific differences. For
instance, does the target home have an upgraded kitchen or swimming pool? They add or
subtract value based on such things as location, view, lot size, upgrades, additions, condition
and many other factors. They can then arrive at a valuation for the target home.
Once the appraisal has been completed, the lender is notified of the value. At this point, the
loan amount is either confirmed or declined. If the appraisal comes in too low, the principals
can choose to make up the difference in sales price, lower the sales price or cancel the
transaction.
What is the difference between an Appraisal and a Home Inspection? Although the home appraisal may seem similar to the home inspection, the goals of these two processes are very different.
- The Appraiser determines the value of the home
- The Inspector determines any repairs needed, and their potential cost.
Appraisals are not as complicated as they appear. By learning about recent sales in your area
ahead of time, you can price your home appropriately up front with me; then the appraisal should
come back as expected.
If you have further questions about appraisals or your homes value please email me or call. I'm happy to give free home evaluations.
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