A home appraisal is used by a lender to provide a value for the house a buyer wants to purchase. When you apply for a home loan, one of the conditions of getting that loan is that the home must appraise for a high enough amount for the lender to provide the money you want. But what is a home appraisal, really, and how does it work? It’s important to understand the process, because appraisals don’t always come in at the value you expect them to. When you know how the process works, it’s easier for you to see why the value may be different. If it’s too low, it’s possible to appeal the appraisal or request a second one, which could raise the value of the house and allow you to get the loan and make it to closing.
What is an appraisal based on?
Appraisals are based on a number of factors. The size of the home, where it’s located, the number of bedrooms and bathrooms, and the overall condition are all important. Appraisers who handle residential properties understand that there can be many different factors that make a house a home, but they are mostly concerned with the overall structure and function. They need to know that the systems in the house work correctly and that the home is structurally sound. Then they take all the information they have collected and use standard formulas to come up with a value for that specific house. That value is generally at or around the purchase price of the house in the current contract, but there are times when it can vary greatly.
What are comps?
When you’re buying a home you probably don’t pay much attention to what’s already sold in your area. Those homes aren’t an option for purchase, so they aren’t your focus. But an appraiser sees things differently, the “comps,” or comparable houses, are very important when an appraisal is being done. These can tell an appraiser what kinds of homes have sold recently in the same area, how similar they were to the home you want to buy, and what prices ranges they were in. Once the appraiser has that information, they are more easily able to value the home you’re trying to buy, because they have better information on what the market is doing and how much people are paying for homes. The more you know about the comps, the more you can get an idea of whether your appraisal will come in at an acceptable price. Comps aren’t a guarantee, but they can help.
How much does location matter?
Location is one of the biggest and most important aspects of real estate. People have certain areas in which they want to live, and certain areas they don’t like as well. Not everyone has the same opinion, of course, but there are still neighborhoods that are more or less desirable than others. With that in mind, the appraiser can use the location information on the house to come up with a more appropriate value. For homes in very desirable areas, the price will be higher than that of a similar home in a less desirable neighborhood. That’s a logical way to judge the value of a home, but it’s only one of the factors used. When put together with the home’s information and the comps, location is an important part of the appraisal.
Can an appraisal be changed?
Normally, appraisals aren’t changed. However, they can be appealed. Sometimes, that appeal is enough to raise the value of the home and get the loan closed. There has to be a reason for the appeal, though, such as something the appraiser missed when valuing the house. If that’s the case, the value may be reconsidered, and it’s important for a buyer to be aware that they have options in some cases if the appraisal isn’t acceptable. If the appraisal was done correctly with the right information, though, it can be very difficult to get it changed. In those cases, the value of the house may simply not be high enough to support the purchase price, meaning the lender will not provide financing.
Who performs appraisals?
Appraisals are performed by licensed appraisers, who have been trained to value houses correctly, fairly, and objectively. There are also software programs they can use to help them arrive at values and create reports. This streamlines the process and makes appraising more accurate. It’s possible to get a value assessment of a home through an online source, but it’s not the same as an actual, in-person appraisal. The purchase of a home is a significant event for you, and it’s also an investment for your lender. By getting a home appraisal, the lender can see that they are making a reasonable investment and that the house is going to be worth the amount they are lending to the buyer. That peace of mind is a very important aspect of the home-buying process for everyone involved.
2 Point Highlight
When you apply for a home loan, one of the conditions of getting that loan is that the home must appraise for a high enough amount for the lender to provide the money you want.
By getting a home appraisal, the lender can see that they are making a reasonable investment and that the house is going to be worth the amount they are lending to the buyer.
