You’ve probably heard about home appraisal if you’re planning to buy or sell a house. But what exactly is a home appraisal, and why is it necessary in the mortgage process?
What is Home Appraisal?
A home appraisal is an unbiased estimate of the worth of a residential property completed by a professional appraiser. A home appraisal ensures that the transaction price is in accordance with the home’s fair market value. This ensures that the homebuyer does not overpay for the home and that the mortgage lender does not lend more than the home is worth.
Why is a Home Appraisal Important?
If you plan to borrow money to buy a house, the lender will require a home appraisal to confirm that the property is worth the amount borrowed. This safeguards the lender against lending too much money on a property that may not be worth the investment. A home appraisal can also assist you in negotiating a fair price for the property based on its true market value.
How is a Home Appraisal Conducted?
Once an order from a lender has been received, the appraiser will visit the property to inspect its exterior and interior features, such as its size, age, condition, layout, and amenities. The appraiser will also take note of any recent renovations or upgrades that may have been made to the property, as well as the neighborhood surrounding the property.
Aside from the physical appraisal of the property, the appraiser also looks at previous sales of comparable homes in the neighborhood, or “comps.” This helps the appraiser determine the fair market value of the property being appraised.
The appraiser will then prepare a written report, typically the Uniform Residential Appraisal Report that includes a detailed description of the property, the market analysis, and the final estimate of the property’s value. The report will be submitted to the lender or appraisal management company (AMC) for underwriter review. As a borrower, you are entitled to a free copy of the report before the loan closes. Read this report carefully and immediately notify the lender if you believe there are inaccuracies.
How Much Does a Home Appraisal Cost?
The cost of a home appraisal can vary depending on a number of criteria, including the property’s location, size and complexity, and the appraiser’s experience and credentials. A property assessment can cost between $300 and $500 on average, but it might be higher or lower depending on the circumstances.
Most of the time, the lender arranges the appraisal; you aren’t usually able to compare prices from several providers. While some lenders employ an appraiser directly, the majority work via an appraisal management company (AMC) to preserve impartiality. The appraiser is then hired by the AMC on behalf of the lender.
How To Get Ready for a Home Appraisal?
Prepare for the unexpected. Most home purchase agreements include an appraisal contingency that permits you to back out of the contract if the appraisal comes in lower than expected. Make sure you are aware of your options and the conditions of this and any other contingencies before submitting an offer on a house.
In a competitive market, it’s easy to feel pressed to make a higher offer than a house is worth. However, it is critical to avoid going overboard if you do not have the extra finances to cover the difference between a higher offer and the actual appraised value.
As a buyer, keep in mind that you have little to no influence over the outcome of the home appraisal. If the valuation falls short of your expectations, you have the option of withdrawing or negotiating if you have a contingency in place.
What To Do if the Appraisal is too Low?
If a home appraisal comes in lower than expected, it could potentially cause problems for a home sale. In such a case, it’s important to review the appraisal report carefully to check for any errors that may have caused the unexpected valuation.
If you have an appraisal contingency in your purchase contract it can allow you to get out of the deal and receive a refund of your earnest money deposit if the assessed value is less than the agreed purchase price. On the other hand, if you still want to proceed with the purchase, you may choose to negotiate with the seller for a price that is closer to the appraised value. However, if the seller is not willing to negotiate, a lower appraised value may require you to contribute more toward the down payment to cover the difference.
What To Do if the Appraisal Goes Well
A successful home appraisal puts you one step closer to completing the purchase. Following receipt of the appraisal report, your lender will analyze all of the information in your application, as well as the report, to determine loan approval and loan amount.
When your loan application has been approved, you will get a closing disclosure that includes all the specifics of the loan and the closing expenses involved. If everything is accurate, the next step is the closing day, when you’ll need to provide identification and money to settle the closing fees. If you’re buying a home, you’ll get the keys to the house when you sign the necessary paperwork to complete the purchase.