So, you have found the home you have been looking (forever for) and now it’s GO TIME! One of the first items on your closing checklist is the home appraisal. So, what exactly is that?
In short, a home appraisal helps you and your listing agent determine what your home is worth in the current housing market. A homes worth as its fair market value. A value assessment of the home and property. It is conducted by a certified third party and is used to determine whether the home is priced appropriately.
During a home appraisal, the appraiser conducts a complete visual inspection of the interior and exterior of the home. He or she factors in a variety of things, including the home’s floor plan functionality, condition, location, school district, fixtures, lot size, and more. An upward adjustment is generally made if the home has a deck, a view, or a large yard. The appraiser will also compare the home to several similar homes that were sold within the last six months in the area.
The final report must include a street map showing the property and the ones’ compared, photographs of the interior and exterior, an explanation on how the square footage was calculated, market sales data, public land records, and more.
After it is complete, the lender uses the information found to ensure that the property is worth the amount they are investing. This is a safe-guard for the lender as the home acts as collateral for the mortgage. If the buyer defaults on the mortgage and goes into foreclosure, the lender generally sells the home to recover the money borrowed.
The lender you are using to underwrite your mortgage needs to know the fair market value of your home. This way, the firm can ensure the amount of money it lends you to pay for the home does not exceed its value.
Because an independent company conducts your home appraisal, it is fair and impartial. You can be sure that the results you receive are accurate.
Who Conducts a Home Appraisal?
A state-licensed professional home appraiser. This person has absolutely no stake in the value of your home. This means that they do not receive anything from the sale of your home. You only pay the inspector a flat fee for their services. Because of this, you can be sure that the person is not inflating or deflating the value of your property for personal gain. It is purely objective.
These appraisal companies are also licensed through a state agency that enforces the Uniform Standards of Professional Appraisal Practice, along with many other regulations. You can feel confident trusting your appraisal agent’s professional opinion on the value of your home.
Why Do I Need a Home Appraisal?
The short answer: Because your lenders require it.
The long answer: Your lenders need to make sure that the amount of money that they are giving you for your mortgage matches the property you would like to purchase. If the home is worth $200,000.00 – the mortgage needs to be that much.
It would not make any sense to approve you for a $300,000.00 mortgage on a $250,000. home. This would be too risky for the lender as the value of the asset would then not be enough to support the weight of the loan. Lenders will always compare the sales price of the home to its appraised value to ensure this.
What is Evaluated during a Home Appraisal?
Here are factors that go into deciding a home’s fair market value.
- The overall condition of the home
- The square footage of the home
- The size of the property lot
- The quality of landscaping
- How many bedrooms and bathrooms there are
- The quality of natural light in the home
- The number of fireplaces
- The addition of a swimming pool
- Whether the basement (if included) is finished or unfinished
- The finishing details in the home (such as the material of the counter tops and floors)
The appraiser will also take into account..
- The location of the home
- The views from the home
- The selling price of similar homes
The feature that tends to pull the most weight in home appraisals is the selling price of similar homes, also known as comparable or “comps”. Your appraiser will typically look at five or six comps but sometimes can examine up to ten.
Comps are selected from your immediate geographic area. This way, you don’t have to adjust the price for the location. You simply adjust the price based on differences in features. For example, a three-bedroom house cannot be directly compared to the four-bedroom next door.
Who Pays for the Home Appraisal?
The person purchasing the home typically pays for the home appraisal. This is because your lender uses it to confirm the amount of the buyer’s mortgage.
However, people selling their homes can also have it appraised to ensure that they list it at a competitive price. They can also have it appraised for a refinancing situation.
How Much Does a Home Appraisal Typically Cost?
While the exact cost for a home appraisal varies based on where the home is, you can usually budget about $200 to $500 for the service. The buyer’s closing costs cover the fee. If you choose to have your home appraised as a seller, you should expect to pay the fee upfront.
How Long Does a Home Appraisal Take?
The entire process should not take more than a week to complete. While the appraiser might only be in your home for a few hours examining it, they will still need to write a report and submit it to your lender. The writing and submitting of the report is typically the longest part of the process.