When you are ready to start home shopping, you think about the plentiful kitchen space you hope to find, or ample basement size. You probably aren’t thinking about a home appraisal.
If you’re in the process of selling, you’re probably dreaming about the home you plan to move into. You’re probably wondering how much you will sell your home for as well.
Whether you are buying or selling, you definitely aren’t thinking much into the home appraisal process. It’s not the most glamorous part of buying or selling, yet if home appraisals disappeared tomorrow, the real estate market would take a dive.
If you’re about to buy or sell a home and know little about appraisals, it’s time to get educated.
What is a home appraisal?
A home appraisal is an educated guess, by a professional, as to how much your home is worth.
What is an appraiser?
Appraisers are licensed by state after completing the appropriate coursework and internship hours. The appraiser must be an objective third party, someone who has no connection to the financial transaction.
Why are they important?
No financial institution will lend you money without an appraisal.
The appraisal allows the lender to know what the loan collateral will sell for in a worst-case scenario.
In other words, the bank doesn’t want to be stuck with a home they lent the borrower $100,000 for, but it can only sell for $50,000 because that’s all it is worth.
So, appraisals are a necessary evil, but what makes them a tense topic for all parties is that they’re conducted after you’ve negotiated a selling price, agreed to buy, and signed the contract. It’s in everyone’s best interest that the appraisal comes as close to the price the seller and buyer have agreed on as possible.
Who pays for the home appraisal?
Usually, the seller pays for the appraisal at closing, which can be upwards of $700. The national average cost for a property appraisal is $309.
How are home appraisals different from home inspection?
These two often get confused, but are not the same. Both an appraiser and inspector walk around your home and take a good look at it, but they’re each there for different reasons. The appraiser is there to evaluate the value of your home; the inspector is looking for defects that may cause financial pain later.
If the appraiser notices a problem, he or she won’t ignore it. If they spot a leaky sink or loose wiring, he or she can request an inspection.
How long does the appraisal process take?
Since the recession and the change of federal guidelines, the appraisal process can often take a week or two. An underwriter can request additional information about the house, and gathering data and pictures can take time for the seller, which can delay the closing date.
What factors are considered when deciding the worth of a home?
The appraiser looks at key characteristics of the property including square footage, bedrooms and bathroom, condition of the house, health and safety issues, and recently sold comparable that are in the vicinity.
Here are a few other things included:
- Evaluation of the real estate market in the area
- Estimate of the average sales time for the property
- Type of area the home is located, for example, a development or acreage.
As a homeowner, what can you do to improve the process?
Once the appraisal process starts, there is nothing you can do. But before the appraiser comes, you can take some common steps.
Have the property in tip-top shape; clean the house, get out the air freshener and open the blinds. You want the appraiser to see the property for its full potential so they will seek a value in the upper end range. In addition to the inside, make sure the outside looks mowed and bushes trimmed.
It will also be helpful to sit down the night before the appraisal and make a list of repairs and improvements that have been done to the house in the past. If you’ve put a new roof or bought a new water heater, the appraiser needs to know. It doesn’t have to be formal and can be given to the appraiser before he or she leaves.
Keep in mind, your $20,000 bathroom remodel may help the appraisal, but it doesn’t mean your home is worth an extra $20,000.
What your Realtor will do
If you are the seller, your realtor will be there to meet the appraiser and share the improvements you jotted down.
The more information a seller and their realtor can give the appraiser that they can’t just find out by walking around the home or checking the listing, the better.
What about low appraisals?
Don’t panic if the appraisal value comes in lower than expected; there are steps you can take to make the deal work. If the appraisal uncovers other problems, remember most of them are correctable. Keep your cool and work through the problems one step at a time.
If your appraisal is higher than the sale price
It’s important to recognize an appraisal isn’t meant to derail your plans. In fact, it can help you determine if you are getting a good deal or not. If your home appraisal comes in higher than the price you’re paying, then you will benefit immediately because you’ll have more equity thank you thought.
If your appraisal is lower than the sale price
If your home is appraised at a lower price than expected, you and the seller will need to abide by the signed contact. If your contract is dependent on the appraisal, you may withdraw the offer. The appraisal has saved you from spending too much for the home.
If you opt to buy the home anyway, you have a few other options:
- Challenge the appraisal
- Pay for a second appraisal
- Come up with extra cash to make up the difference
- Renegotiate the contract
- Ask the seller to finance the gap between the appraisal and selling price
Your lender and realtor will be able to guide you through the appraisal process and help you decide which offer will work best for you.