Home Appraisals

What is a Home Appraisal?

A home appraisal is an unbiased professional assessment of a property's market value. It is conducted by a licensed appraiser who evaluates various factors to determine the value of the home. The appraisal ensures that the lender is not over-lending on the property and that the buyer is not overpaying.

Why Home Appraisals Are Necessary

Home appraisals are essential for several reasons:

• Lender Requirement: If you are getting a mortgage, the lender will require an appraisal to ensure the loan amount is appropriate for the property’s value.

• Buyer Protection: An appraisal helps you confirm that you are paying a fair price for the home.

• Negotiation Tool: If the appraisal value is lower than the purchase price, it can be used to renegotiate the price or terms of the sale.

The Appraisal Process

The appraisal process involves several steps:

• Scheduling the Appraisal: When getting a mortgage, the lender typically schedules the appraiser to ensure an unbiased evaluation. If you are buying the property with cash but still want an appraisal, you can hire a private appraiser directly.

• Property Inspection: The appraiser visits the property to conduct a thorough inspection, assessing its condition, features, and any improvements. If you are getting an FHA or VA loan, part of the property inspection will also include confirming the home is in livable condition, but the appraiser's inspection is not the same as a home inspection.

• Comparative Market Analysis: The appraiser compares the property to similar homes that have recently sold in the area (known as comparables or comps) to determine its market value.

• Appraisal Report: The appraiser compiles their findings into a detailed report, including the appraised value, the comps used, and any factors that influenced the valuation.

Factors That Influence Appraisal Value

Several factors can affect the appraised value of a home:

• Location: The neighborhood, school district, and proximity to amenities impact the value. Typically, an appraiser will look at homes with 2 miles unless there are not enough similar ones within that distance to compare.

• Condition & Features: The overall condition of the property, including any needed repairs or upgrades. The appraiser will also try to compare homes that have a similar level of finishes or features. For example, only comparing a home with a pool to other homes with a pool.

• Size and Layout: The size of the home, the number of bedrooms and bathrooms, and the layout. Usually, an appraiser will look at properties that are with 20% of the square footage of the one you're buying, as the sales prices of homes that are much bigger or smaller are not an accurate representation of price per square foot.

• Comparable Sales: Recent sales of similar properties in the area provide a benchmark for the appraisal. Most appraisers will look at the most recent sales, and try not to go back more than 6 months.

• Market Trends: Current real estate market conditions and trends also play a role. Appraisers will consider if the market is going up or down, and factor that into their evaluation accordingly.

Understanding the Appraisal Report

The appraisal report provides a comprehensive evaluation of the property’s value. Key sections of the report include:

• Appraised Value: The official market valuation assigned to the property by the appraiser based on their professional analysis.

• Comparable Sales: A breakdown of similar recently sold properties used to determine the home's value, highlighting their prices, locations, and similarities.

• Property Description: A thorough overview of the property’s size, condition, notable features, and any upgrades or improvements that may impact its worth.

• Market Analysis: A summary of current real estate trends, economic factors, and local market conditions that influence property values.

Dealing with Low Appraisals

If the appraisal value comes in lower than the purchase price, you have several options:

• Renegotiate the Price: Use the lower appraisal to negotiate a reduction in the purchase price with the seller.

• Increase Down Payment: Make up the difference between the appraised value and the purchase price with a larger down payment.

• Challenge the Appraisal: If you believe the appraisal is inaccurate, you can request a review or a second appraisal.

• Walk Away: If the appraisal contingency is included in your offer, you can cancel the contract without penalty.