What Is an Appraisal?
Thinking about buying or selling a home? Then you may be thinking about getting your home appraised. The value of your home determines how much you will sell or buy the property for. So it’s a good idea to understand what factors influence an appraisal and how these can affect both buyer and sellers.
What Is an Appraisal?
An appraisal is the value of a property determined by a certified, state-licensed professional. All 50 states hold licensing or certification requirements for professional appraisals. A licensed appraiser needs to meet specific qualifying criteria that show that he or she understands how to make this estimation.
When Are Appraisals Used?
Most home buying and selling transactions involve appraisals. The majority of lenders require appraisals before issuing a loan to ensure that they are not loaning more money than the home’s fair market value.
Appraisals are also used in refinancing transactions so that the lender can lower the risk of giving the borrower more money than the home value.
Why do lenders care what the home is worth? The property is collateral for the mortgage. If the borrower defaults on the mortgage, the home goes into foreclosure, which means that the lender will try to recoup their money by selling the home. However, if the lender has provided a loan that exceeds the value of the home, then the lender may not be able to recover that money.
Even though most people typically don’t hire appraisers unless they’re buying or refinancing, home appraisal can be done at any time, for any reason. But just remember, appraisals do not influence your property taxes. Taxes are based on assessments, which are performed by the county. Appraisals, by contrast, are performed by the private sector.
What Factors Influence an Appraisal?
Professional appraisers look at many variables, including the number of bedrooms and bathrooms, the floorplan and layout, the square footage, the condition of the property, features and amenities such as fireplaces, decks or swimming pools, structural components such as brick or siding, and a multitude of other factors.
Appraisers also look at recent sales of similar properties in the area, known as comparable sales, or “comps.”
How Do Appraisals Affect Home Buyers and Sellers?
For buyers, if an appraisal comes in below the contract price, you, or your real estate agent, may be able to use this as a negotiating tool to try to reduce the price of the home.
You can also renegotiate other aspects of the contract. You can ask the seller to make improvements to the property, and then order another appraisal after these improvements are complete. It’s possible that the improvements could help the property appraise at a higher value that meets your contract price.
Another option, if possible, is to walk away. Many purchase-and-sale contracts are written with an “appraisal contingency,” which means if the contract price is higher than the value of the property, the buyer holds the right to terminate the contract.
For sellers, if you believe that your home has been appraised at a value that is too low or inaccurate, you can ask for second opinion. This will require ordering a second appraisal, which will be performed by a different licensed appraiser. Talk to your real estate agent if you’re in this situation to find out whether or not your agent recommends this course of action.
If you’re a seller who isn’t yet under contract, and you’re concerned about pricing your home such that it’ll appraise, share these concerns with your real estate agent. While agents cannot officially appraise a property (unless they also hold an appraiser’s license), they’re trained in analyzing market “comps.” Your agent can show you these comps and help you devise a pricing strategy that satisfies your needs.