When it comes down to the home appraisal basics what matters is the value that the lender will agree on as much as what the seller is willing to accept. This is because in many ways real estate sales are complicated transactions that involve large investments and the work of many interested parties.
Home Appraisal Basics In A Nutshell
Because of these complexities in the marketplace, there are several different types of appraisals. Occasionally an appraisal is required to determine a divorce settlement, set insurance or value for property taxes. By far the most common appraisal, and the one that homebuyers are most interested in, is the mortgage appraisal; purchase and refinancing are two of the main reasons to have a home appraised.
Appraisals of real estate for loan approval are very highly regulated at the state and federal levels. They must be conducted by state certified appraisers. When a buyer needs to finance their real estate purchase it is the lender that orders the appraisal. The cost of the expert opinion is passed on to the buyer as a fee in the closing costs of the loan.
A significant part of the reason for government involvement is the number of government backed home loans on the market. In the case of FHA loans the appraiser has an obligation to reveal any defects that they find to the buyer. In non-FHA loans there is no such obligation.
If buyers are paying cash there is no requirement for a valuation. However, as a matter of due diligence, cash buyers should get professional advice to establish that they are about to offer a reasonable price.
How To Appraise A Home
Real estate has the very unique characteristic that no two parcels of land or buildings are exactly alike. It is this feature that requires that trained professionals do appraisals.
The most direct method of appraisal that is used is to rate a home relative to comparable properties that have recently sold nearby. It helps to have a large market of fairly conventional homes with which to compare your property. There is much that goes into this approach, beyond the mere comparison of square footage.
Appraisers take into account the location, recent sales of similar properties in the area and any obvious defects in the land parcel or structure of the buildings included in the purchase.
The one most disruptive outcome to an appraisal is that it should come in as being worth less than the asking price. That will cause lenders to deny the loan application.
The Value Of The Disinterested Third Party
The most valuable aspect of professional appraisals apart from their knowledge of the market and skills is that they are disinterested parties. When homes are bought and sold emotions run high.
Buyers and sellers all have a strong interest in receiving the outcome that they desire. That desire often is less than realistic or emotionally charged, they will cling to unrealistic hopes. That is why lenders and buyers need to go beyond the home appraisal basics to ensure that they are making smart decisions that are sound investments.