An appraisal of your home is an essential part of any transaction. It is important to understand the process of appraisals, and how they are used to determine a home’s value.
What is a Home Assessment?
An appraisal is an objective, professional opinion about the property’s value. In almost all transactions, an appraisal is required. Appraisals are also used in refinance transactions. To determine whether the contract price of a home is reasonable based on its condition, location, and other factors, an appraisal is necessary.
An appraisal guarantees that the lender won’t give the borrower more than what the home is worth during a refinance transaction. Discrimination in mortgage lending is against the law. If you feel that you have been discriminated against because of your race, religion or use of public aid, there are steps you can follow.
Either the U.S. Department of Housing and Urban Development (USDHUD) or the Consumer Financial Protection Bureau(CFPB) can receive a report. You may also find the home appraisal process biased. You can appeal to the appraiser if you feel that your home was unfairly valued.
Lenders ask homeowners to be cautious about borrowing too much money for a home that is used as collateral for a mortgage. The lender can sell the property to recoup the loan if the borrower defaults or goes into foreclosure.
This appraisal helps the bank avoid lending more than it can afford in a worst-case situation.
Here are some things you should know about home appraisals
How Values Are Determined and The Appraisal Process
Lenders will often order an appraisal to protect their interest. An appraisal can run several hundred dollars and usually the borrower pays the fee.
The Appraisal Institute, a professional association for real estate appraisers, is an organization. The Appraisal Institute states that qualified appraisers must be licensed in each state or certified in each area.
Federal regulations require that an appraiser is impartial and has no direct or indirect interest in the transaction.
Market trends and sales of similar properties can influence the property’s value. The key factors that determine the home’s value are its amenities, number and bathrooms, floor plan, functionality, square footage, and other important factors.
The property must be inspected both inside and out.
What is an appraisal report?
For single-family homes, appraisers typically use the Uniform Residential appraisal report from Fannie Mae.
The appraiser will be asked to describe the inside and exterior of the property, as well as the surrounding area. The appraiser will then provide a valuation and a conclusion about the property’s value based on these observations.
These must all be included in your appraisal report
- A street map showing the property’s estimated value and comparable sales.
- An exterior building sketch
- Here is how square footage was calculated.
- Photographs of the front, rear and street scenes of this house
- Photographs of similar front exteriors are used
- Other information such as public records and market sales data will be required by the appraiser.
Private mortgage insurance (PMI), will be required if your home equity is less than 20%.
What Homebuyers Need to Know About Appraisals
If you’re buying a house, the appraisal is an essential step in closing. If the appraisal is equal or greater than the contract value, the transaction will go as planned. If the appraisal falls below contract value, it can delay or derail your transaction.
It is likely that neither you nor the seller want the transaction fail. The seller can use a low appraisal to negotiate a lower price. The property’s value is not subject to borrowing by you or any potential buyers.
While appraisals are a great way to help buyers avoid overpaying for their homes, sellers might feel the appraisal is inaccurate and may be unwilling to lower the price. Bad appraisals can be a problem when you are trying to sell your house or buy a new one. An appraiser can give you a second opinion.
Appraisers can make mistakes and provide insufficient information. Appraisals can therefore be biased.
You can also present a factual case for a higher appraisal. It is possible to convince them to revise the appraisal.
Federal guidelines can lead to appraisals that are lower than fair market value. These guidelines were intended to end the inflated appraisal values that caused the 2008 housing crisis. Low appraisals can be difficult to challenge.
What Home Sellers Need to Know About Appraisals
Low appraisals can lead to a lower price for your home. If you wait for an all cash buyer who doesn’t require an appraisal, it is unlikely you will get a better sale price. No one wants to pay too high for a house.
Your home’s value could be affected by recent distressed sales. If your home is in better condition than other properties, an appraiser may be willing to value it higher.
A home that is being given as a gift to a family member requires an appraisal.
What homeowners need to know about appraisals
Low appraisals could make it difficult to refinance your conventional mortgage. The home must be appraised at least twice the amount you want to refinance in order to get your loan approved.
FHA mortgages can be refinanced through the FHA streamline program, without the need for an appraisal. This is an excellent option for homeowners who are currently underwater.
How long does it take to appraise a house?
The average appraisal takes 7-10 days. The appraiser will spend one hour inspecting the exterior and interior of the property, measuring its square footage, and evaluating its features, fixtures, and other details.
After conducting a physical inspection, the appraiser will run comps to see if the home is comparable to other homes in the area.
It all depends on the complexity of the appraisal and the schedule of the appraiser.
What is the Cost of a Home Assessment?
Appraisals of homes usually cost $300-$450.5, depending on where the property is located and how large it is. Appraisers are paid hourly or flat fees. An appraiser can expect to receive a percentage of the home’s value. This is unethical and should not be done.
What happens next?
After the home appraisal is complete, mortgage underwriting follows. After the home appraisal is completed, the mortgage underwriter will examine your loan file to verify everything is correct.
The underwriter reviews all information and determines the risk of the loan.
What Lowers a Home’s Value?
Its location is the most important factor that determines the home’s value. It can impact the value of a home if it is in an undesirable neighborhood, near junkyards, power lines, or on busy streets.
While you cannot alter the property’s location, there are some things you can do that will reduce its value. You can increase curb appeal and keep up with routine maintenance.
Summary
If all goes smoothly, the home appraisal may be added to a closing checklist. The transaction could be delayed or cancelled if the appraisal value is lower than expected.
Whatever situation you may find yourself in, knowing how the appraisal process works will help you win, especially for your first home.
There are many things you should consider when refinancing or purchasing a home. You shouldn’t pay more for a loan. Better.com doesn’t charge a commission.