A home appraisal is a crucial component of buying a new home, refinancing an existing mortgage, or selling the house to anyone who doesn’t pay in cash. As a buyer, seller, or owner, you have to understand the intricacies associated with the home appraisal process and how an appraiser determines a home’s value.
An appraisal is an unprejudiced professional opinion of a property’s genuine value. Appraisals are quite a common phenomenon in purchasing and sale transactions. They are also used in refinancing a home. An appraisal helps to determine whether a property’s contract price is appropriate or not based on its condition, location, and home details. In refinancing, the appraisal is an assurance to the lender that it’s not going to provide the borrower with more money than the home’s genuine price.
Because the house is being used as collateral for the mortgage, lenders need to make sure that the homeowners aren’t over-borrowing for a house. If the borrower defaults on the mortgage and goes into foreclosure, the lender will have to sell the house to recover the money it lent. In short, an appraisal helps the bank to prevent itself from lending more than it would be able to recover.
Since the appraisal itself protects the interests of the lender, the lender is the one who orders the appraisal. The process can cost several hundred dollars, which is typically paid by the borrower. There is an Appraisal Institute which is an association of professional real estate appraisers. The experts of this organization say that a qualified appraiser should possess a license to operate and should have specific certifications. It is a rule followed in all fifty states. The appraiser should also have a thorough knowledge of the local area. Based on federal regulations, the appraiser should behave impartially and show no direct or indirect interest in the transaction.
The current market trends or recent sales of similar properties tend to influence a homes’ appraised value. Other key factors that help an appraiser assess the property’s value include amenities, the number of bedrooms and bathrooms, the square footage of the house, and the floor plan functionality. An appraiser has to conduct an all-encompassing visual inspection of the interior and exterior of the home while noting any conditions that adversely affect the value of the property. For instance, if it needs urgent repairs, then the overall value of the house will decline. Generally, appraisers use Fannie Mae’s Uniform Residential Appraisal Report for on-family homes. This report demands the appraiser to describe the interior, exterior, the neighborhood, and nearby comparable sales. Then, the appraiser will come up with an analysis and conclusion concerning the property’s value based on his or her observations.
As a homebuyer, you should know that an appraisal is one of the first steps in the closing process if you are under contract. If the appraisal tells you that the property is at or above the contract price, then you can proceed as planned. However, if the appraisal comes in below the contracted price, then you should wait or derail the transaction. Neither you nor the seller would want to discontinue the transaction even with a low appraisal. In reality, you will be in an advantageous position with such a report. After all, you can use it as a negotiation tool to convince the seller to lower their price. Besides, the bank won’t give you or any other prospective buyer more than the actual price of the house.
As a seller, an accurate appraisal that declares specific faults in a property may force you to reduce the price. You may think about waiting for an all-cash buyer who won’t require an appraisal. However it isn’t going to be of use to you because there aren’t any guarantees that you’ll get the price that you desire. Very few people out there would overpay for a new home.
If there are any distressed sales in your location, then it can negatively affect the appraisal value. You may try to convince the appraiser that your property is at a significantly better condition than all of the other houses in the area if you feel that the low appraisal value is the result of nearby foreclosures and short sales.
If you are going to refinance a traditional mortgage, then you should be wary of low appraisals. They can prevent you from doing what you want to do. The home requires an appraisal at or above the amount that you wish to refinance. Only then you’ll receive the loan approval. If you existing mortgage is an FHA mortgage, you may refinance without an appraisal via the FHA Streamline program. It’s the best option for underwater homeowners.
If everything goes smoothly, then the home appraisal process is nothing more than just another checkbox for you to tick. When appraisal values drop lower than expected, you can delay or cancel the transaction. Sometimes lenders will allow you to suggest appraisers, it doesn’t hurt to ask them. If you are looking for an appraiser that is familiar with the Bucks County area, reach out to one of our trusted, vetted Bucks County appraisers listed here.