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Whether you’re looking to refinance your home mortgage or considering buying a new home, a home appraisal is an integral part of either process. But what exactly is a home appraisal? How much does it cost? What factors affect the cost? Who bears that cost? We’ll answer these questions and more in this short read.
What Is a home appraisal?
A home appraisal is an estimation of the value of a home according to a qualified professional. Home appraisals are conducted by licensed professionals.
These professionals are third-party appraisers, who are in no way connected to the sellers, buyers, or mortgage lenders associated with the home in question.
This makes sure that the appraisal is an unbiased, objective estimate of the home’s value.
Importance of home appraisal
Home appraisals answer the all-important question, “How much is my home worth?”
This information is important if you’re looking at selling your home because it helps you decide how to price your property while putting it on the market.
It is also helpful if you’re buying a home since it will tell you the sales price of your prospective dream home.
It also helps lenders, be it for refinancing or for purchasing a new home, ensure that the homeowner does not get paid more than the actual value of the property.
Once a home has been appraised, the lender can then offer a loan based on the loan-to-value ratio.
A home appraisal is also instrumental in deciding the interest rate the lender will charge on the loan. A loan to purchase a well-maintained home will usually have a lower rate of interest than a loan to purchase a fixer-upper.
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Home appraisal process
A house appraisal involves looking into a number of factors, including the size of the home and square footage of the plot, construction materials used and style, age of the property, location of the property, upgrades, and renovations, curb appeal, current market trends and the rate similar homes have been sold for in that neighborhood in the recent past.
It is a federal requirement that the appraiser is unbiased during the process.
Most professional appraisers use Fannie Mae’s Uniform Residential Appraisal Report Form to guide them through the appraisal process.
The process involves an on-site visual inspection of the property in question and a look at recent real estate valuations. These comparable sales are called comps.
Evaluators will use these comps to adjust the value of a home either upwards or downwards.
For example, a home with a particularly unique location, a larger backyard, or with high ROI home renovations may get a higher valuation than other properties in the same neighborhood.
On the other hand, factors like dated appliances, long pending repairs, and water damage are likely to hurt the home’s valuation.
Other factors that will be considered include whether the neighborhood is urban, suburban, or rural, how much working space is available, whether it is close to a business district or not, and accessibility to public transportation.
The home appraisal fee is borne by the buyer, or in the case of refinancing a home, the borrower. The mortgage lender usually determines who is going to appraise the property, but you can always check the government registry of licensed real estate appraisers to make sure the person appraising the home has the necessary qualifications and credentials.
Once the lender orders an evaluation, a thorough home inspection is carried out by the licensed professional. The home’s HVAC features and safety will be checked.
Regarding the loans…
Some home loans, such as VA loans and FHA loans have specific requirements that will need to be checked.
Once the inspection is complete, the appraiser reviews comps and arrives at a fair market value of the home. The appraiser then generates a report that features an accurate description of the home, the size of the land, the market conditions in the neighborhood, and more.
The processing of the loan depends on whether the home is appraised at the purchase price or lower. If the valuation is higher than the purchase price, it does not pose a problem. However, if the valuation is lower, the lender is likely to change the terms of the loan, since the loan amount cannot be more than the value of the property.
The entire process of getting a home appraised can take around a week or more to complete. A valuation holds good for around 120 days, or 4 months. If the home is not sold within that time
frame, another home appraisal will need to be done.
Home appraisal costs
The cost of a single family home appraisal could vary between $200 and $600, with the national average hovering around $335.
The actual cost depends on a number of factors, including the type of home, the size of the home, the location of the property, the amount of appraisal work required from the evaluator, and the condition of the property.
A well-kept home requires less work from the evaluator and is therefore likely to cost less than appraising a dilapidated home will.
Similarly, a large, multi-story home will have a lot more area to cover, and will, therefore, cost more to appraise.
Single-family homes with a lot of unique renovations and features will be more difficult to evaluate, since there won’t be too many comps available to compare them to. This may make the evaluation more expensive as well.
Expect to pay more for a home appraisal if you live in a remote area since the appraiser won’t really have too many comparable sales to use while evaluating your home. This will mean more research will be needed to arrive at a number.
Home appraisal checklist
Here’s a list of what home appraisers generally look for.
- Potential health and safety hazards.
- The structural integrity of the roofs, walls, etc.
- Visible defects
- The general upkeep of the home
- Upgrades and renovations
- Any specific areas the lender may have asked for an inspection of.
- Additionally, an appraiser can demand an inspection of the roof, water or even for pests if they deem it necessary.
Home appraisals vs Home inspections
Both home appraisals and home inspections are vital while buying a house. However, there are
Important differences between the two.
- A home appraisal is mandatory from the lender to decide the value of a home. A home inspection, while advisable, is not mandatory. This is why a lender will schedule a home appraisal, but the onus of scheduling a home inspection is usually on the home buyer.
- A home inspection tells buyers about the condition of the home they are interested in. Importance is given to the functional aspects of the home, such as the HVAC and electrical systems, the structural integrity of the roof, the walls, etc.
A home appraisal goes beyond just that, using the condition of the home as one of the factors while comparing the property with other comparable homes sold recently in the area to arrive at a valuation of the home.
A buyer always pays for the appraisal as well as for home inspections, in most cases.