Understanding Home Appraisals: Essential Insights for Buyers and Sellers
Home appraisals are an essential part of the home buying or selling process. They can help you determine the fair market value of a property, and whether you can qualify for a mortgage loan or negotiate a better price. But what exactly is a home appraisal, and how can you prepare for it?
Here are some answers to common questions about home appraisals:
Home appraisals are an essential part of the home buying or selling process. They can help you determine how much a home or property is worth, and whether the sale price is in line with the fair market value. But what exactly is a home appraisal, and how can you prepare for it? Here are some answers to common questions about home appraisals.
What is a Home Appraisal?
A home appraisal is an objective, professional assessment of a property’s value by a licensed appraiser. An appraiser will perform a visual inspection of the property and its condition while comparing it to similar recently sold properties in the area. They will also take into account factors such as location, size, features, and overall quality of the property. Finally, the appraiser will compile and provide a written report detailing their findings and valuation opinion.
The purpose of a home appraisal is to provide an unbiased estimate of a property’s value. This estimate is crucial for the lender, buyer, and seller. The lender requires an accurate appraisal to ensure they are not over-lending. The buyer needs the appraisal to confirm they are paying a fair price. It also helps them qualify for the mortgage loan. The seller needs an appraisal to justify their asking price and to negotiate with the buyer.
When Does the Home Appraisal Happen During the Buying Process?
The home appraisal usually happens after the seller accepts the buyer’s offer and before the closing date. The lender will order an appraisal from an independent appraiser or an appraisal management company (AMC). The buyer will typically pay for the appraisal fee, which can range from $200 to $500 depending on the size and type of the property.
The appraiser will contact the seller or their agent to schedule a time to inspect the property. The inspection can take anywhere from 15 minutes to several hours, depending on the complexity of the property. The appraiser will then research the market data and prepare the appraisal report, which can take a few days to a few weeks. The appraiser will send the report to the lender, who will share it with the buyer and the seller.
How Do You Read a Home Appraisal Report?
A home appraisal report is a detailed document that summarizes the appraiser’s findings and opinion of value. The report will include the following information:
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- The purpose and scope of the appraisal
- The property description, including its address, legal description, lot size, zoning, and any easements or encumbrances
- The property condition, including any defects, damages, or improvements
- The valuation approach, including the methods and techniques used by the appraiser to estimate the value
- The comparable sales analysis, including the properties that were used as benchmarks and how they were adjusted for differences with the subject property
- The reconciliation and final value opinion, including the appraiser’s reasoning and justification for their conclusion
- The certification and signature of the appraiser, along with their qualifications and license number
The most important part of the report is the final value opinion, which is the appraiser’s best estimate of what the property is worth in the current market. This is the number that the lender will use to determine how much they are willing to lend to the buyer.
What Happens After an Appraisal?
After an appraisal, there are three possible outcomes:
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- The appraisal comes in at or above the contract price. This means that the lender is satisfied with the value of the property and will proceed with the loan approval. The buyer and seller can move forward with the closing process.
- The appraisal comes in below the contract price. This means that the lender is not willing to lend the full amount of the loan based on the lower value of the property. This creates a gap between the loan amount and the contract price, which is called an appraisal shortfall. The buyer and seller have several options to deal with this situation, such as renegotiating the price, splitting the difference, requesting a second opinion, or canceling the contract.
- The appraisal is inconclusive or inaccurate. This means that there are errors or discrepancies in the appraisal report that affect its reliability or validity. For example, the appraiser may have missed some important features of the property, used outdated or inappropriate comparables, or made incorrect adjustments. The buyer or seller can challenge or dispute the appraisal by providing additional information or evidence to support their case, such as recent sales, market trends, or professional opinions. The lender will review the challenge and decide whether to order a new appraisal or revise the existing one.
How Can Buyers and Sellers Prepare for a Home Appraisal?
As a buyer, you can prepare for a home appraisal by doing the following:
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- Review the seller’s disclosure statement, which will list any known issues or defects with the property
- Research the market conditions and recent sales in the area, and compare them with the contract price
- Ask your lender or agent about the appraisal process and what to expect
- Review the appraisal report carefully and ask questions if you don’t understand something
- Be prepared to negotiate or walk away if the appraisal comes in low
As a seller, you can prepare for a home appraisal by doing the following:
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- Clean and declutter the property and make it look presentable
- Make any minor repairs or improvements that can boost the value or appeal of the property, such as painting, landscaping, or replacing fixtures
- Provide the appraiser with a list of any major upgrades or renovations that you have done to the property, along with receipts or permits
- Provide access to all areas of the property, including the attic, basement, garage, and crawl space
- Be courteous and cooperative with the appraiser, but don’t follow them around or try to influence their opinion
Review the appraisal report carefully and ask questions if you don’t agree with something. Be prepared to negotiate or make concessions if the appraisal comes in low.