Buyers, sellers, and hopeful refinancers alike should familiarize themselves with the appraisal.
Take the time to understand what the critical steps in the homeownership process are and why they matter.
What is a home appraisal?
An appraisal is the estimated value of a home determined by an inspection of the property and its comparison to recently sold homes in the area to estimate the value.
Before you complete the home buying, selling, or refinancing process, it’s required that you first get a home valuation, the most common of which is an appraisal, which gives an estimate of the value of the home in question. The findings from an appraisal determine the amount a mortgage lender will let you borrow for the property.
The home appraisal process
The appraisal process will vary depending on your loan type but, in most cases, begins with an appraisal visit (Forbes, 2020). During the visit, an appraiser will inspect the status of the interior and exterior of the home, review any potential safety hazards, and note the number of rooms and any upgrades or renovations. The appraiser will also typically take photos or videos of the home and, depending on the loan type, test utilities, and appliances. After the visit, the appraiser will then research comparable homes with similar characteristics that have recently sold in nearby markets.
Why do home appraisals matter?
Understanding the significance of a home appraisal is particularly important for buyers (Investopedia, 2020). If the appraisal is equal to or higher than the listing price, you can likely proceed with your purchase. If the figure comes in lower, however, the purchase could get a bit more complicated. Lenders won’t typically lend borrowers more than their home of choice is worth, so you may need to either use the appraisal as a bargaining chip to negotiate a lower price, get a second opinion from another appraiser or walk away from this particular home.
Whatever your role in the homeownership process, it’s important to understand the power of a home appraisal. Take some time to get to know appraisal requirements based on the loan type, explore property values nearby and, if you’re a current owner, make any necessary upgrades to present your home in its best light. After all, this figure can make or break a sale or refinance.
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