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What You Should Know About Home Appraisals

What You Should Know About Home Appraisals

October 08, 2021 by X2 Mortgage

A home appraisal is required in majority of real estate transactions, whether you're purchasing, refinancing, or selling your home to someone other than a cash buyer. 

You may be wondering what exactly an appraisal is and why you need one. Long story short: It's a document that provides information about the value of a property. Appraisers will usually conduct an inspection of the property and complete an examination on its value and marketability.

Getting a home appraisal is a great way to get the most out of your property, so let's take a look at the most important things you should know about a home appraisal. 


What Is a Home Appraisal?

An appraisal is a formal and unbiased professional assessment of a property that details the fair market value. The appraisal is based on many factors and is often required to proceed with a transaction when buying, selling, or refinancing a home. 

For lenders, The purpose of a home appraisal is to determine if there is enough equity in the house to cover any outstanding loans against the property in case of a mortgage default. If there isn't sufficient equity, lenders will require additional collateral such as real estate-owned properties or other assets. A lender might also ask for more down payment than initially agreed upon when financing the purchase.

An appraisal provides an answer to the question, "How much is my house worth?" and also shields the buyer from overpaying. It restricts the lender from lending the homeowner more money than the home is worth. 

A house appraisal typically takes two weeks to receive; however, this inspection timeframe can vary based on market conditions, location, and the intricacy of the evaluation.


Why is an Appraisal Needed?

Appraisals provide valuable data to help you make sound financial decisions, such as selling your house, refinancing your mortgage, or adding to your savings. They are often required when you apply for a mortgage because it helps the lender determine the value of your home.

Although it may seem like a daunting process, in reality, a good appraisal can help a buyer, seller, and lender in a number of ways and aid in the decision-making process. Home appraisals are not only used to determine how much you can sell or rent your house for but they also help determine whether the property is in an acceptable condition to be approved for a mortgage.

However with some mortgage types like FHA streamlines, USDA streamline loans, and VA interest rate reduction refinance loans (IRRRLS) or even some Conventional loans when you receive an appraisal waiver, an appraisal assessment is not requirement.


How Does a Home Appraisal Work?

Home appraisals are typically conducted by a licensed appraiser who, when examining the condition of the property, considers factors such as market value, comparable properties in the area, and how well the property reflects its value in terms of decor and repair.

All states require that an appraiser be licensed or accredited to provide reports to federally regulated lenders. They should also know the area and be neutral and independent of the transaction they are analyzing. You can request to join the appraiser on the walk-through of the property if the lender agrees.

The appraiser writes a report known as the Uniform Residential Appraisal Report after completing a site inspection, market research, and a check of public records for the property. 


Getting a Home Appraisal Report

You typically will have access to a copy of the appraisal report three days before the loan closes as the mortgage borrower. It's a smart idea to go through the information to make sure it's accurate.

Notify the lender if you identify any problems or believe the estimated value is incorrect. Any relevant information you submit may cause the appraiser to reassess the property. In the rare chance that the appraiser has not done their due diligence properly, you can also get a second appraisal requested from the lender. Keep in mind that if your request is approved, you'll have to pay for the assessment.

If the appraised value of a home you want to buy is lower than you expected, you can also submit a Notice of Reconsideration for the Appraiser to reasses the property based on newly provided information. More commonly when an appraisal comes in lower than the sale price, you might be able to utilize that knowledge to bargain with the seller for a lower price.


What You Need to Know As a Homebuyer

Lenders usually base the amount of money they loan you on the appraised property value rather than the listing or sales price. If you're getting a loan to buy a house, your lender may require an appraisal contingency as the first step in the closing process to ensure that your loan doesn't go beyond the home's worth. The lender is generally in charge of coordinating the evaluation.

You have a few choices if the appraised value of the home you've made an offer on is less than your offer price:

  • Compensate for the Difference in Price

As previously stated, lenders determine how much you can borrow depending on the value of your house as determined by an appraisal. Your loan amount will be reduced if the property turns out to be at a lower value. However, If you want to buy the house, you'll have to increase your down payment to make up for the difference between your new loan amount and the agreed-upon price.

  • Submit a Reconsideration of Value (ROV)

Reconsiderations of Values can be submitted when you, your real estate agent, or your loan officer believes that the Appraiser missed crucial comparables or information on the property that would have otherwise impacted the value. Typically the Appraisal company will require at least three new comparable sales in the area that were not used in the report along with justification as to why they should be used. A Reconsideration of Value typically doesn't impact value but in the off chance that the Appraiser did miss something, it can be a great tool to add to your belt.

  • Renegotiate with the Seller on the Price

If you genuinely want the house but don't want the higher financial obligations that come with a lower assessment value, this is the option for you; you can always ask the seller to agree to a lower purchase price. In a competitive market where sellers receive many offers and bidding battles are typical, this may be a long shot.

  • You can Choose to Back Out of the Contract if There is an Appraisal Contingency

In cases where the seller refuses to renegotiate the purchase price and you do not want to pay the difference yourself, an appraisal contingency allows you to cancel the purchase agreement. It also permits you to recuperate your EMD (earnest money deposit) if you follow the terms and deadlines outlined in your offer.


What Is The Price Of A Home Appraisal?

Most Appraisal valuations that are being done in today's market are ranging from $480 to $725, with the national average being around $535. However, the cost of an appraisal, on the other hand, is determined by a number of criteria, including:

  • The house's dimensions

  • The type of residence

  • The location of the house

  • The property's current state

  • The amount of time and effort needed

  • The uniqueness of the property

These criteria impact the amount of time, effort, and energy put into the appraisal, which affects the price the borrower will pay. A larger home or multi-unit property, for example, provides more area to go through and examine.


Who Pays for a Home Appraisal?

When a mortgage is involved, the appraiser is hired and scheduled by the lender. The mortgage applicant is responsible for the appraisal cost.

For instance, when purchasing a home, the buyer pays for the appraisal, and when refinancing a mortgage, the homeowner pays for the evaluation. However, when you buy a home with cash, there is no need for an assessment because no lender is involved. But we advise you should have an appraisal of the property to make sure you don't overpay.


Selling A House? Here Are Some Home Appraisal Tips For You

Before you sell your house, you need to make sure your house is worth what other people say it's worth and understand how to increase the value of their homes.

1. Check Out the Comparables

Research and consider the sale prices of homes in your area that are similar in square footage, layout, renovations, and condition to yours. Because markets suffer seasonal ebbs and flows, it's advisable to go back a maximum of 6 months or look at properties that were sold at the same time of year you're trying to sell. You can get this information from a local real estate agent or your county court records.

2. Complete Minor Fixes

It's time to get your project to-do list out, which every homeowner has. Oil the squeaky door hinges, paint that fence, and fiddle with the particular garbage disposal. They may appear minor to you, but to an appraiser, they might detract from the overall quality of your home. We suggest taking a walk around your house to look for tiny problems that you can solve yourself.

3. Increase Your Home's Curb Appeal

The appearance of your home has an impact on its overall value. If your home were a book, the cover would be its curb appeal, and both buyers and appraisers will judge it heavily. This is because the status of a home's exterior can be misinterpreted as representing its interior condition.

Don't know where to begin? You might start by repairing minor problems such as leaking roofs or blocked gutters. Another easy but effective chore is to make sure that any walkways leading into your home are clear and well-lit. Adding beautiful ornamental features to your doorway and, of course, keeping your grass in good shape are both great attempts to enhance the appearance of your home.

4. Upgrades to the Appearance Should be Considered

It's always a risk to upgrade your property for an evaluation. There's a danger that if you spend a lot of money on a complete redesign, you won't get your money back in terms of enhanced value. More minor cosmetic alterations, on the other hand, are frequently beneficial.

Adding a fresh coat of paint, replacing obsolete bathroom vanities, and upgrading to contemporary fixtures are all low-cost and labor-intensive projects that may have a significant impact.

5. Keep Track of your Progress

You should keep records of any changes you make to your house. Because your appraiser may be unfamiliar with the homes in your neighborhood, this is your opportunity to highlight any additional value in your home. Make a list of any improvements you've made to the house.

If you have any documents related to the upgrades, such as contractor bills, make sure to send copies with your list. As a result, your claims will have more credibility, and the contractor will be able to judge the quality of the work appropriately.

Before making any significant changes to your property, ensure you get the proper permits from your city. Resolving unpermitted work can not only be costly, but unpermitted work might actually lower the value of your home.


How Long Is A Home Appraisal Good For?

In most cases, a home appraisal is valid for four months (about 120 days). You will need another assessment if you do not close on your home within that time frame. Some people may be granted an extension, but only under specified conditions and if they qualify. 

Because market conditions fluctuate, an evaluation has a limited duration. Home sales six months ago may differ significantly from those in recent months, mainly because the real estate market is mostly unpredictable.


Home Appraisal Guidelines for Refinances

A low appraisal may prevent you from refinancing a mortgage. It would help if you got your house ready for the finest refinance evaluation possible. Check that your home's appliances and systems work correctly and that the exterior of your home is in good condition. Before the appraisal, make a few minor improvements, declutter, and prepare for children and pets.

The general value procedure used by appraisers is the same for refinancing as it is for purchasing a home. A home's value is calculated using the same factors in both types of evaluations. For appraisals on both purchase and refinance loans, the appraiser utilizes standard URAR forms.

Make a note of all the improvements you've made to your home and compare them to similar ones. When all of these factors are considered together, you may get a higher evaluation value.


Checklist for Home Appraisal

The appraiser's task is to determine the property's overall fair market worth. To accomplish this, they must check for certain factors that may influence the price or the lender's choice to lend you money for the house. These usually consist of:

  • Hazards to one's health and safety

  • The home's structural integrity

  • The state of the house

  • Upgrades and enhancements

  • Defects that can be seen

  • Any terms imposed by the lender

If there is evidence of possible hazards, appraisers can schedule any inspections they deem essential, such as a roof, pest, or water inspection. If any issues are discovered during the appraisal or inspection that do not satisfy the lender's criteria, they must be addressed before you can move in.

Checklist for the Exterior

Here are a few things the appraiser checks on the home exterior 

  • Your property's total land area, or acreage

  • The roof and foundation of the house are in good shape.

  • The state of the chimney

  • Driveway surface condition and type

  • The curb appeal of a house

  • The landscaping's quality

  • The state of the pool, if one exists.

  • Garage design

  • The structural integrity of your home

Checklist for the Interior

When the appraiser inspects the inside of the house, you may anticipate them to look at the following items:

  • The amount of room that can be used as a living place.

  • Bathrooms and bedrooms count

  • Basement or crawl space type

  • Upgrades to built-in appliances

  • Any flaking paint or lead paint, but only if the house was built before 1979.

  • Electrical and plumbing systems are of good quality.

  • The type of material used for the walls, floors, and windows, as well as their current state

  • Termites or pests have been discovered.

  • Features that save energy

  • Home maintenance in general

  • Permanent upgrades


Wrap up

Appraisals can cause delays or even cancellations in transactions when you're purchasing a new home, selling your current one, or refinancing your mortgage. So it's a good idea to understand the details of your appraisal process.

Home appraisals should be performed by trusted and licensed appraisers. They will consider the various approaches in making their evaluation and will explain the specific factors affecting the value of the home.

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