Today, I want to discuss what a home appraisal is and why they are needed when purchasing a house.
An appraisal is an unbiased professional opinion of a home’s value. In a purchase and sale transaction, an appraisal is used to determine whether a home’s contract price is appropriate given the home’s conditions, location, and features.
Lenders want to make sure that homeowners are not over-borrowing for the property because the home serves as collateral for the mortgage. If the borrower defaults on the mortgage and forecloses, the lender can recoup the money by selling the home.
Because the appraisal primarily protects the lender’s interest, the lender will usually order the appraisal. The value found by the appraisal is influenced by recent sales of similar homes, current market trends, the home’s amenities, floor plan, and accessibility. The appraiser must do a complete visual inspection of the interior and exterior and note any condition that might adversely affect the property’s value, such as needed repairs.
Next, the appraiser provides a comprehensive report that includes an analysis and conclusions about the property’s value. An appraisal typically costs between $400-$500, and generally, the borrower pays the fee.
When you’re buying a home and you’re under contract, the appraisal will be one of the first steps in the closing process. If the appraisal comes in at or above the contract price, the transaction proceeds as planned. On the other hand, if the appraisal comes in below the contract price, it can delay or derail the transaction. Chances are, neither you nor the seller want the transaction to fall through, and as a buyer, you have an advantage in that a low appraisal can serve as a negotiating tool to convince the seller to lower the price so the transaction can move forward.
If you’re a seller, it might be a good idea to get an appraisal before you list your home to get a better idea of what the current market value of your home is from a third-party perspective. When everything goes smoothly, the home appraisal is just another box to check on a loan closing checklist, which is the goal for buyers, sellers, and lenders in the transaction process.
If you have any questions about this topic, or if you need real estate assistance of any kind, don’t hesitate to reach out to us. We would love to hear from you!