Home Appraisals are an important part of mortgage transactions. If you are remortgaging, switching your mortgage, refinancing your current mortgage, or getting a mortgage for a new home, appraisals will be a necessary part of the process. Even if you are a seller on the other side of the transaction, you will also need to be aware of home appraisals and how they work, and how appraisers determine the values of home. We will describe what a home appraisal is and what you need to know about them.
What is a Home Appraisal?
An appraisal is a professional and unbiased opinion on the value of a home. Because the opinion needs to be unbiased, it is important that you ensure an appraiser is a third party outside of the parties involved in the related mortgage plan.
Appraisals are used to determine an appropriate value for a home during purchase-and-sale transactions, and is most commonly used when refinancing on a mortgage. When refinancing lenders want to use appraisals to make sure that they are not giving the home buyer more money than the property is actually worth.
If a home owner borrows more money than they should it can cause problems for the lender. This is because the home itself serves as collateral for the lender. If a home buyer were to default on a mortgage and the property is foreclosed, and lender may not be able to recover as much money as they lent out to the borrower in the first place.
How Home Values are Determined
Qualified appraisers will make a report based off of things like a visual inspection, the sale of similar properties, home features, and market trends to determine the value of the home. A qualified appraiser has received all the proper licenses and certifications, and is familiar with the local area of the property in question.
Other factors that influence the value of an appraisal are:
- Floor plan functionality
- Square footage
- Number of Bedrooms
- Number of Bathrooms
What you Should Know as a Homebuyer
A home appraisal will usually be the first step in the closing process of purchasing your new home, and is something requested by the lender that you, the home buyer, must pay for. If the appraisal on your home is equal to or greater than the contract price, your mortgage transaction will proceed as planned. If the appraisal comes in below the contract price, it could potentially hinder the transaction.
However, a low appraisal can be a good thing for a homebuyer, because chances are the seller of the home does not want the transaction to fall through either. You can use a low appraisal as a bargaining tool to convince the seller of the home to lower their price to more appropriately reflect the value presented in the appraisal.
But, a bad appraisal could also get in the way of you completing the transaction to purchase your new home. If this is the case you may want to try and get a second opinion on your appraisal. You could also present your own case to the appraiser with facts that will reveal a higher value of the home than what was reported. Appraisers are still human and may have made mistakes. If you present your own case, there is a chance that they might agree with you and increase the value of their appraisal.