Whether you’re buying a home or selling, it’s important to be well-educated on the home appraisal process. If you’re unfamiliar or just need a refresher, I’m here to help.
What Is a Home Appraisal?
In short, a home appraisal is a very good estimate of how much a property is worth. Once a home as an offer and the loan is applied for, lenders require that an appraiser come and determine the property’s true market value. Appraisals are done after a price has been agreed on and contracts have been signed.
Make sure the sales-and-purchase agreement allows the possibility of renegotiating the price or terminating the contract if necessary.
Why Do You Need and Lenders Require a Home Appraisal?
Financial institutions (Lenders) will not let you borrow money for a property without an appraisal:
- To ensure the loan amount given is fair
- To protect the Buyer from paying more than what a home is worth
- To protect themselves by determining what the loan collateral will sell for, if Buyer Default
Appraisals are a great “voice of reason” in a process that often has buyers and sellers relying heavily on their emotions. Keep in mind, an appraisal is different than an inspection; an appraisal is less detailed than the inspection that they only make note of obvious issues rather than underlying ones.
Is a Home Appraisal the Same as A Home Inspection?
No! both do require walking throughout the property to check things out. An appraiser, on the other hand, is to determine the value of the home. An appraiser is likely to request an inspection if they notice any issues that require another look.
A home inspector is there to discover any defects (safety and health issues) with the house that could bring financial problems in the future.
How Does the Appraiser Determine a Home’s Value?
There are a few factors, but the main ones include the basics. Appraisers will look at the number of bathrooms and bedrooms, the condition of the property, square footage, and even any safety/health issues. Of course, appraisers tend to pay a lot of attention to how comparable homes in the area sold recently.
What if the Appraisal Value is Lower than the Negotiated Price?
In most cases, appraisals come back to match the home negotiated price. In cases, an appraisal determines the home to be worth less than negotiated price; then, the lender deems it as making a bad investment. While each agreement has their own unique set of circumstances, these are the general options:
- Settle – Buyer love the house so much, they pay the difference between List Price and Appraisal Price
- Negotiate – Seller matches the Appraisal Price, or a number in between
- Terminate – Buyer decides to walk away from the home (Most contracts give you that option)
- Appeal – Prove the appraisal was made in error (which is very difficult to prove)
Take the time to learn about the best way to handle these different appraisal scenarios to ensure that you get the best deal on a home.
Sellers – How Can You Prepare for a Home Appraisal?
As a homeowner, you should do everything in your power to make sure the place looks nice and attractive. Doing some cleaning, repairs, and upgrades prior to the appraiser’s arrival is recommended if you want to increase your home’s value.
Make sure everything outside is in excellent shape, which means mowing the lawn, trimming bushes, etc. Every room inside should also be cleaned and ready for showing. Any small repairs and renovations are also recommended, just don’t overdo it.