Your Guide to Home Appraisals

Having an appraisal done on a home is an important step in the buying process. But did you know that the purpose of an appraisal is not to protect buyers from making a bad purchase?

That’s right. A home appraisal is actually intended to protect the lender.

A home appraisal is carried out as part of the closing process after a buyer gets a contract for the house. In order for banks or lenders to determine how much money they can give to the buyer.

What is an appraisal?

An appraisal is an evaluation of the home and property to determine its worth.

Before the buyer is given a mortgage, the lender must ensure that the value of the home is worth what they are about to invest in it. And, in case the buyer defaults on the mortgage, the lender must ensure that the house will be a fair collateral.

For this reason, the appraisal is generally ordered by the lender, although the buyer is often required to pay the appraisal fee.

Appraisers are unbiased professionals who are brought in to do a visual inspection of the home and property. They should be licensed or certified, and be familiar with the area. An appraiser must be impartial, and therefore cannot be anyone with a connection to or interest in the purchase of the home.

How do home appraisals work?

An appraisal is primarily an inspection of the interior and exterior of a home. The appraiser will note and take into consideration anything that might negatively impact the value of the home.

In an appraisal, there are many things to consider, such as:

• Functionality of the floor plan
• Number of bedrooms and bathrooms
• Condition of the home
• Location of the property
• Size of the property
• Fixtures and amenities

Once the home has been inspected, the appraiser will do a comparison between the home in question and other similar properties sold within the last 6 months. He/she will also consider current market trends and how these impact the value of the property.

In the final appraisal report, the appraiser will put together an explanation of how he/she came to a decision on the value of the home. This report will include a street map showing the house and all the properties it was compared to, photos of the home (and exterior front shots of the comparable homes), and an explanation of how square footage was calculated. The appraiser will also include market sales data, public land records, public tax records, and any other relevant documentation.

What happens after the home appraisal?

In a lot of cases, the appraisal value of the home will work out to be equal to or more than the contract price for the home. In this case, everything proceeds as normal.

However, if the value of the home is determined to be less than the contract price, the buying process could be delayed or prevented from continuing. Lenders will never give out loans for more than the home is worth. As mentioned earlier, this is because the home serves as collateral for the mortgage.

In this situation, there are a few options for the buyer and seller to consider.

First, the buyer can use the appraisal value to negotiate a lower purchasing price.

Second, the seller can ask for a second opinion and pay for another appraisal.

Third, the seller can make a factual appeal to the appraiser explaining why the home is worth more. If the price of the house has been impacted by low sales in the area, such as foreclosures and short sales, then the seller can make a case as to why their home is in a better condition than the “comparable” properties.