If you’re involved in a mortgage transaction, whether you’re buying a home, refinancing your existing mortgage, or selling your home to a non-all-cash buyer, a home appraisal is a crucial component that you need to understand. In this blog post, we will delve into the details of what a home appraisal entails and how an appraiser determines the value of a home. By familiarizing yourself with this process, you’ll be better equipped to navigate the real estate market with confidence.
What Is a Home Appraisal? A home appraisal is an unbiased professional opinion of a property’s value. It is almost always used in home transactions and is particularly common in refinance transactions. In a purchase-and-sale transaction, the appraisal helps determine whether the contract price is appropriate based on the home’s condition, location, and features. On the other hand, in a refinance transaction, the appraisal assures the lender that they are not loaning more money than the home is worth.
The Role of Appraisers A qualified appraiser plays a vital role in the home appraisal process. They are responsible for creating a report based on an in-person inspection, research into recent sales of comparable properties, analysis of current market trends, and consideration of the home’s specific details such as size, condition, floor plan, and amenities. It is important to note that federal regulations require appraisers to be impartial and have no direct or indirect interest in the transaction. They must be licensed or certified in accordance with state requirements.
The Cost of a Home Appraisal The appraisal fee is typically paid by the borrower and usually ranges from $300 to $450 for an average home. This cost may vary depending on factors such as the property’s size, condition, and the level of detail required for the appraisal.
Understanding the Appraisal Report Appraisers typically use the Uniform Residential Appraisal Report from Fannie Mae for single-family homes. This report includes essential information such as a street map showing the property’s location and comparable sales, an exterior building sketch, details on how the square footage was calculated, and photographs of the property and comparable homes. Additionally, the appraiser includes an analysis and conclusions regarding the property’s value based on their observations. The report may also incorporate market sales data, public land records, and public tax records used to determine the property’s fair market value.
Implications for Buyers, Sellers, and Refinancers For buyers, the home appraisal is a significant step in the closing process. If the appraisal value matches or exceeds the contract price, the transaction proceeds as planned. However, if the appraisal value falls below the contract price, it can cause delays or even jeopardize the transaction. In such cases, a low appraisal can serve as a negotiating tool for the buyer to persuade the seller to lower the price.
Sellers, on the other hand, need to be aware that a low appraisal may require them to lower their home’s price to facilitate a sale. It is important to note that distress sales in the neighborhood can potentially affect the appraisal value. Sellers can present a case to the appraiser, highlighting their home’s superior condition compared to nearby foreclosures and short sales, to potentially influence a higher valuation.
For refinancing homeowners, a low appraisal can hinder the refinancing process, particularly if the home’s appraised value is lower than the desired loan amount. However, homeowners with FHA mortgages can explore the FHA streamline program, which allows refinancing without an appraisal.
The Importance of the Appraisal Process The home appraisal process serves as a safeguard for lenders to ensure homeowners do not overborrow, as the home acts as collateral for the mortgage. It protects the lender in the event