Getting a property appraisal is an essential part of any home purchase or sale, so much so that it can make or break the transaction.
Below, we’ll cover everything you need to know: what an appraisal is, how it works, and why getting a satisfactory one is so crucial. By the end of this guide, you’ll be able to go into your home appraisal feeling prepared for what’s to come.
A home appraisal is an unbiased estimate of a property’s fair market value by a third-party professional. Fortunately, this process is not nearly as complicated as the definition may make it sound. At its core, a home appraisal is simply a chance for someone who’s not personally involved in the sale to give their opinion on what the home is worth.
Getting an unbiased opinion on the price of a home is vital for a few reasons:
It’s crucial to get a home appraisal that matches (or exceeds) the sale price. That’s because most lenders will only issue a mortgage loan that’s worth the appraised value or less. If the property valuation comes back much lower than the sale price, the buyer may have trouble securing a mortgage that’s large enough to buy the house.
However, if that happens, know that all hope is not lost. For buyers, their real estate agent could ask the appraisal management company to review their decision. The agent may also submit additional comparable homes or other evidence of market trends to help justify the purchase price.
Buyers can also be proactive about this potential outcome by adding an appraisal contingency to their initial offer, which allows them to walk away from the sale with no penalty in the case of a low home appraisal.
Sellers even have some options in this scenario. They can either renegotiate the sale amount, ask the buyer to find additional financing, or put the home back on the market and wait for another buyer who doesn’t need as big of a loan.
The home appraisal process begins with an appraiser making a site visit to the property. They will then assess the home’s interior and exterior based on a variety of factors, like its condition, location, and features.
In some cases, the appraiser will conduct the inspection remotely. This method is called a desktop appraisal and offers the same valuation just without a physical site inspection.
In addition to the site inspection, the appraiser will also take into account the prices of comparable sales in the area before deciding on a valuation.
When the appraiser has finished their assessment, they’ll release an appraisal report, which contains the official valuation of the property. It gets sent to several people involved in the transaction, including the buyer, their real estate agent, the lender, and in some cases, the seller and their agent.
Appraisers are real estate professionals who determine a property’s market value. They are professionally trained and licensed or certified. Appraisers act independently of sellers, buyers, and lenders, and are not compensated commensurate with their valuation in order to maintain their impartiality. Their opinion of value is based solely on the facts of a property.
When determining the fair market value, the appraiser usually looks at a mix of external factors, internal factors, and comparable sales. We've provided a few examples of each one below so that you have a better idea of how your home value will be determined.
Once the appraiser has collected all that information, they will compare your property to other comparable homes that have recently sold in your area. These are typically homes that are within a quarter- or half-mile from yours, and sold within the last three to six months.
They will use the purchase price of the other properties to help inform your appraisal value. For example, if your property is roughly the same size and layout as another home that sold in your neighborhood a few months ago, but it is in much better condition, you will likely be given a higher appraised value.
You can expect to pay between $300 to $400 for an appraisal, though the cost can vary if your home is larger than average. The appraisal price can also be higher if your house is in a remote location that’s difficult for the appraiser to access.
While the lender orders, and requires, the home appraisal, the home's new buyer is the one who pays for it. The appraisal fee is usually paid up front, but it can be folded into closing costs. The appraisal needs to be paid for by someone regardless of whether the sale goes through, which can mean a sunk cost for the buyer if they don't end up purchasing the home. An appraisal is typically good for a few months.
After you make an offer on a home, your lender will order your home appraisal. But you can expect to wait up to ten days to receive the appraisal report.
The process of buying or selling your home can be full of potential roadblocks. If you’re looking to streamline your own home sale or purchase, consider working with Orchard.
For those buying a new home and selling their current one at the same time, we’ll help you make a competitive, non-contingent offer to buy your next home. Then, we’ll help you sell your current home for top dollar in 120 days or less. Our service also eliminates the stress of lining up your buying and selling timelines so you can focus on finding your dream home.
Interested in learning more about Orchard? Start by getting a free valuation on your home.
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