When you begin the process of buying or selling a home, you may be imagining how happy your kids will be playing in a larger yard, or how pleasant it will feel to finally move to the lake house of your dreams.
But before you can settle into your new space, one thing to be completed is the home appraisal. You’ll want to have an appraisal done during the buying and selling process. But what exactly does it entail?
An appraisal is an estimate, based on unbiased research, of the fair market value of your home. Appraisals are important when it comes to getting financing for purchase. Most homebuyers need to get a loan of some kind, and most lenders are going to require an appraisal before they will lend that money to you.
Why? The house you’re going to buy functions as loan collateral. If you take out a loan for $300,000 and you aren’t able to pay, the lender needs to be sure that they can recoup their losses through the collateral. If the house you bought with that $300,000 loan is worth $300,000, the lender should be able to recover the loss.
However, say you buy a house listed at $300,000 and find out later that it’s only worth $200,000. This is a problem for both parties, as it leaves a significant deficit. While the difference in true market value and list price will rarely be so extreme, there’s still a chance that a home may be purchased for an incorrect value.
So, take the time to schedule an appraisal! An appraisal is done by a licensed appraiser not associated with either buyer or seller, and is completed after both parties have signed a contract and negotiated a price. At this point, everyone is hoping the appraised value will be as close as possible to the agreed upon price so there is no further need to negotiate. Make sure the sales and purchase agreement you have signed allows you to step out of the contract or renegotiate the price if need be.
The seller usually pays for the appraisal, which can cost a few hundred dollars. An appraisal is not an inspection, though an inspection should also be completed. This will look for issues with the home that you might have to pay to fix down the road, while the appraisal determines current value.
An appraiser will consider two things when looking at a home. When visiting the property, they will examine the quality and condition of interior and exterior items, like the roof, foundation, windows and appliances, as well as what materials they are constructed of. Amenities like central air, fireplaces and pools will add to the value, as will upgrades to the home. As a homeowner, you can let the appraiser know about any major improvements you’ve made, and make sure the house and yard are clean and neat for the day of the appraisal.
In the second part of the process the appraiser will look at comparable properties, homes in the area similar to yours that are on the market or have recently been sold, to get an idea of the true market value of the home.
It usually takes a few days to get the final report after the appraisal has been completed. Once this is done, you’re free to move forward with the next step of your home sale!
Photo by lumaxart - 3D Realty Handshake, CC BY-SA 2.0, https://commons.wikimedia.org/w/index.php?curid=3590909