Typically, lenders insist on a formal appraisal of a home before releasing the funds to purchase it. Fortunately, you can learn everything you need to know about making sure you have a good home appraisal with a search online.
A home appraisal serves as the primary method for lenders to ensure a house is adequate collateral in case of mortgage default. Unfortunately, the choice of the appraiser is typically not in your hands — it’s usually decided by the lender.
Understanding the Need for Home Appraisals
Discussing why appraisals are essential, we know that obtaining one is often a prerequisite for mortgage approval when purchasing a home. Sellers should also consider getting their property appraised, particularly if they are unsure of its current market value due to long-term residence. It’s important to note that appraisals typically value homes below their potential market selling price.
The Importance of Accurate Home Appraisals
Accuracy in appraisals is crucial. Whether you’re buying or selling, request a copy of the appraisal and scrutinize it for errors, as these can significantly affect the property’s assessed value. Verify the correctness of the address, the house’s details like the number of bedrooms, and the presence of a garage. Any mistakes found should be promptly communicated to the appraiser for rectification.
Key Elements To Review in a Home Appraisal
Every aspect of the home appraisal demands your attention. Errors are not uncommon, given that appraisals are conducted by humans. Even small oversights can have significant implications in a transaction as substantial as home buying. From personal experience, even basic details like the address can be misrecorded. Pay extra attention to the house’s square footage, number of rooms, and overall layout, as these are fundamental to the appraisal’s integrity.
Market Value: The Central Figure
In the home buying process, the estimated market value is the most critical figure. Buyers need to ensure they are not overpaying, while sellers must be aware that a low appraisal might lead to renegotiation of the sale price. In a buoyant real estate market, however, appraisals might hold less sway over the final sale price.
Square Footage: A Fundamental Metric
Discrepancies in square footage can lead to significant changes in the property’s market value. Appraisers should measure both indoor and outdoor spaces accurately. If the appraisal’s square footage vastly differs from tax records or property listings, it could undermine the entire valuation.
Examining the One Unit Housing Trends Section
This section of the Uniform Residential Appraisal Report indicates market demand and other local real estate trends. Any inaccuracies here can suggest a lack of understanding of the local market, impacting the validity of the final valuation.
The Significance of Comparable Sales Selection
Comparing your property to similar ones in the area is a vital aspect of the appraisal. Consider whether unique features or recent renovations in your property, such as a new kitchen or pool, are reflected in the appraisal. Also, ensure that comparisons are made with similar properties to avoid skewed valuations.
Adjustments in the Appraisal
Ensure that any improvements are acknowledged in the appraisal and that the adjustments reflect the added market value, not just the cost of upgrades. This can significantly influence the final valuation, especially in the case of major renovations.
Appraisals: A Mix of Objectivity and Subjectivity
While appraisals aim to be objective, they are inherently subjective and vary based on the appraiser’s diligence and perspective. It’s beneficial to be present during the appraisal to point out any significant aspects or upgrades of the property.
Waiving the Home Appraisal
In some cases, especially during refinancing, lenders might waive the appraisal requirement. This usually happens when there is clear equity in the property, reducing the lender’s risk. Additionally, waiving an appraisal can expedite the refinancing process, making it a quicker and more efficient experience for the borrower. It’s also beneficial in a stable or rising market, where property values are expected to be consistent or increase, further assuring the lender of their investment’s security.
Lenders and the Home Appraisal
Lenders aren’t keen on repossessing and selling properties; their goal is timely loan repayments. A waived appraisal can be advantageous, saving costs ranging from $300 to over $1,000. Good credit and a substantial down payment might lead a lender to forego the appraisal.
Final Thoughts on Home Appraisals
The home appraisal report, such as the six-page URAR form, may initially seem daunting but is manageable with careful review. Ensure all information is correct, especially the estimated market value and comparable sales data. A thorough review of the appraisal is a significant step towards securing a mortgage or refinancing approval.