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The Home Appraisal- Ensuring a Fair Valuation

Whether you’re on the verge of buying your dream home, refinancing your current mortgage, or selling your property, the home appraisal process plays a pivotal role in the transaction. Understanding how this process works and how appraisers determine a home’s value is essential for all parties involved. In this blog, we will take a deep dive into the home appraisal process, shedding light on what to expect and how to ensure a fair valuation of your property.

Demystifying Home Appraisals

So, what exactly is a home appraisal? Simply put, it’s an unbiased professional assessment of a home’s value. Appraisals are a standard procedure in real estate transactions, frequently utilized in both home purchases and refinances. The purpose of an appraisal varies depending on the type of transaction:

Purchase Transactions 

In a purchase-and-sale transaction, the appraisal evaluates whether the home’s contract price aligns with its condition, location, and features. It ensures that the buyer isn’t overpaying for the property.

Refinance Transactions

In a refinance transaction, the appraisal assures the lender that they are not extending more funds than the home’s actual value. This protects the lender in the event of default and foreclosure.

The Appraisal Process and Associated Costs

The responsibility for ordering the appraisal typically falls on the lender because it primarily safeguards their interests. However, the borrower generally covers the cost of the appraisal. The fee for an appraisal typically ranges from several hundred dollars, but the exact amount can vary depending on factors such as the property’s size, condition, and the level of detail required.

It’s important to note that federal regulations require appraisers to be licensed or certified, ensuring their familiarity with the local real estate landscape. Furthermore, to maintain integrity, appraisers must remain impartial, having no direct or indirect stake in the transaction.

Key Aspects Examined During a Home Appraisal

A property’s appraisal value is influenced by various factors, including:

  1. Comparative Sales: Recent sales of similar properties in the vicinity and prevailing market trends play a significant role in determining a property’s value.
  2. Property Amenities: The number of bedrooms, bathrooms, the functionality of the floor plan, and the square footage all contribute to the appraisal value.
  3. Property Condition: Appraisers conduct a thorough inspection of the property, both inside and outside, noting any conditions that could negatively affect its value, such as necessary repairs.

What’s Included in an Appraisal Report?

Most appraisers use the Uniform Residential Appraisal Report, a standardized format provided by Fannie Mae for single-family homes. The appraisal report typically comprises:

– A street map illustrating the property’s location and comparable sales nearby.

– An exterior building sketch.

– An explanation of how the square footage was calculated.

– Photographs of the property’s front, back, and street.

– Front exterior photographs of each comparable property used.

– Additional relevant information like market sales data, public land records, and public tax records that have been leveraged to ascertain the property’s fair market value.

What Homebuyers Should Know About Appraisals

For prospective homebuyers, the appraisal becomes a pivotal step in the closing process once a purchase contract is in place. If the appraisal aligns with or surpasses the contract price, the transaction proceeds as planned. However, if the appraisal falls short of the contract price, it can potentially disrupt the transaction.

In such cases, a low appraisal can serve as a negotiation tool for buyers to persuade sellers to lower the price, ensuring they don’t overpay. Remember that a lender will not extend more funds than the property’s value, making it in the best interest of both parties to reach a mutually agreeable price.

Addressing Issues with a Home Appraisal

If you believe that a low appraisal is inaccurate and could jeopardize your transaction, seeking a second opinion by bringing in another appraiser is an option. Appraisers, like everyone else, can make mistakes, and appraisals may be influenced by bias. Alternatively, you can present a compelling case for a higher valuation to the original appraiser, potentially leading to a revised evaluation.

What Home Sellers Should Know About Appraisals

As a home seller, a low appraisal may necessitate reducing your home’s price to facilitate a sale. Waiting for an all-cash buyer who doesn’t require an appraisal is unlikely to be a successful strategy, as even cash buyers want to ensure they aren’t overpaying.

If your neighborhood has recently experienced distress sales, it can adversely impact your home’s appraisal value. However, suppose you believe your property is in significantly better condition than nearby distressed properties. In that case, you can make a case to convince the appraiser that your home warrants a higher valuation.

Insights for Refinancing Homeowners

A low appraisal can impede the process for homeowners seeking to refinance a conventional mortgage. The home needs to appraise at or above the desired refinance amount for loan approval.

However, if you have an existing FHA mortgage, you may be eligible for a refinance without an appraisal through the FHA streamline program, a favorable option for underwater homeowners.

Frequently Asked Questions

1. How Long Does a Home Appraisal Take?

An average appraisal process takes about seven to ten days. During this time, the appraiser conducts an interior and exterior inspection, measures the square footage, evaluates the property’s features, and analyzes recent comparable sales (comps). The exact duration can vary based on the appraisal’s complexity and the appraiser’s schedule.

2. What Does a Home Appraisal Cost?

Home appraisals typically range from $300 to $450. The cost can fluctuate based on factors like the property’s location, size, and condition. It’s essential to work with appraisers who charge flat fees or hourly rates. Appraisers who expect a percentage of the home’s value should be avoided, as this practice is unethical.

3. What Happens After the Appraisal?

After a successful appraisal, it becomes part of the closing process’s paperwork. The next step is mortgage underwriting, where the entire loan file is reviewed to ensure all necessary documents have been submitted and the loan’s risk is assessed. Based on this assessment, the lender will either approve or deny the loan.

4. What Can Lower a Home Appraisal?

Several factors can lower a home appraisal, with the property’s location being a significant influencer. An undesirable neighborhood or proximity to unfavorable features like junkyards, power lines, or busy streets can negatively impact the property’s value. While you can’t change the property’s location, you can positively influence other factors. Maintaining a well-kept property, addressing repairs, and presenting a clean and clutter-free environment can enhance the appraisal’s outcome.

The home appraisal process is integral to any real estate transaction, ensuring a fair and accurate property valuation. Whether you’re buying, selling, or refinancing, understanding how appraisals work and how they impact your transaction can help you navigate the process with confidence. Should you have any questions or need professional guidance through the appraisal process, reach out to 1st United Mortgage at (931) 548-1985 or visit our website. We’re here to assist you in making informed real estate decisions.

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