Are you are first time home buyer?
If you’ve never bought a home, or haven’t moved in a while, another step in the home buying process that could cause some confusion for you is the appraisal process.
Appraisals are really there to protect the lender. If you are financing your home, your lender will require an appraiser to determine the value of the property. The lender wants to be sure that the buyer isn’t borrowing more than the house is worth. Typical appraisals cost is $300-450. The lender normally arranges the appraisal with one of their trusted service providers. (Note: even though you as the homebuyer will foot the bill for the appraisal, the lender actually owns the appraisal, and they don’t have to show it to you. A difficult pill to swallow, but how it works.)
The house must appraise close enough to the value of the purchase price, or the lender may deny the loan. If the home appraised lower than the final sale price, the buyer may be able to renegotiate a lower price with the seller. If the seller won’t lower the price, the buyer’s lender may ask that the buyer put more money toward the down payment to make up the difference.
Don’t worry…it’s not that often that a home doesn’t appraise…if the listing agent has done their homework, the home should be properly priced so that it appraises as well.
What’s involved in an appraisal?
The appraiser looks at the roof, foundation, and structure of the home.
They look at the lot and the size of the home.
They take a look at the interior to assess the overall condition.
Does the home have a pool or other features?
Most appraisals are done using the comparable sales price approach.
This means that the appraiser looks at your home and then compares it to similar homes that have sold in your neighborhood or closely surrounding areas in the last 6 months. Adjustments are made for any extras that the subject property being appraised, or the comparable properties have that the other homes do not.
The appraiser does take into account any and all improvements made to the home, but here’s something important to consider:
If your home is located in a neighborhood where homes are selling at $200-300K and you add high-end details inside the home, such as expensive tile, cabinets, or chandeliers, that does not mean that your home will suddenly be worth the $500K you put into it. This is a misconception that one appraiser I spoke to recently described to me.
She said that people sometimes get angry that their home appraised lower than expected due to the money the owner put into the home. The appraiser bases their work on the facts: they can’t put an appraised price of $500K on a home that has the same square footage and approximate age as another home on the same street that sold for $300K.
So, keep this in mind when improving your home. If you enjoy the finer things, go for it. Just know that the super exotic granite countertop from Italy you installed may be more appealing to a buyer, but won’t necessarily make your home appraise higher.
On the other hand, a pool definitely adds value.
Appraisers use a great deal of intricate data analysis to arrive at the appraised price of a property. Most use the Uniform Residential Appraisal Report by Fannie Mae. If you are about to put your property on the market and are uncertain about the true value, you can get an appraisal to help set the asking price. Other times an appraisal can be helpful is if you are refinancing if there is a dispute over value during a divorce, or for tax purposes.
Appraisers are not the enemy.
They caught a lot of heat during the recession because of the overall decline of home values. And they take the blame when a deal is compromised if a home doesn’t appraise in line with contract price. Appraisers are fact finders and truth tellers. They are there to give you the value of your home at this exact moment in time.
And remember: there IS a way around a low appraisal to save a deal: the buyer will need to bring more cash upfront!
If you’d like some more help on figuring out the value of your home or a recommendation of a great appraiser, reach out to us at firstname.lastname@example.org
We’d love to help!