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Guide to Home Appraisals

Whether you already own a home or are just thinking about buying your first property, you’ve probably heard the term home appraisal

Appraisals are important in the process of borrowing money to finance a home because it provides a value. The home appraisal steps protect the buyer, seller, and lender. 

To help you better understand how to go about buying a home, read on to learn home appraisal steps. 

What Is a Home Appraisal?

Anytime a lending institution will be funding the purchase of a property, they require an appraisal. Outside of competing market conditions, a home appraisal gives the actual value of the property. 

But what exactly is a home appraisal?

An appraisal is a valuation of a tract of land and its structure. Appraisals are conducted by independent and reliable professionals. No matter if the structure is a barn, a skyscraper, or a home, an experienced appraiser can assess its value.

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The Difference Between Appraisal and Market Value

When the market is hot, bidding wars can occur. Although this is exciting for sellers as they may stand to make more money than they thought, the buyers still need the funds to back it up

This is because market value is what people may be willing to spend, whereas appraisal value is the actual worth of the property. 

Cash buyers with the funds are welcome to outbid and overpay for any property they like. But for those who depend on mortgage lenders to fund their home purchase, a bidding war may not be feasible. This is because a lender views the property as collateral if the borrower defaults on payment. If the home is worth less than the loan, they would not be able to recoup their losses if the situation arises.

To protect themselves, along with the buyer and seller, lenders require a home appraisal. Although market conditions can have an effect on the appraisal value, hot markets where people are paying well over asking don’t always work out. 

[Related: How to Improve Your Home’s Resale Value]

Key Elements of Appraisal

Professional appraisers take a lot of information into consideration. Aside from the physical inspection, the appraiser also consults a variety of sources. This information comes from multiple listing sources (MLSs), country courthouse records, county tax assessor records, appraisal data records, and more. 

Then when it comes time for the appraiser’s physical inspection, they look at the whole property inside and out. Several factors are considered, including the following:

  • The size of the property, home, and other structures
  • The condition of the home and property, including all interiors and exteriors
  • The layout and features of the home
  • Any updates to the home or property
  • The integrity of the overall construction quality
  • The gross living area (GLA), which is the home’s square footage
  • Separate square footage estimates of garages and any unfinished spaces
  • Permanent fixtures in the home, not including chattel, which is personal items not permanently fixed to the property

Once everything is taken into account, the appraiser will provide a report that includes their professional opinion regarding the home’s value. 

Lenders sometimes ask for both a sales comparison approach (CMA) and cost approach. Don’t let the multiple reports overwhelm you. This helps the lender confirm the value, which also protects you as the buyer or seller. 

[Related: Make Sure You Have These Supporting Documents for Loan Approval]

What Home Buyers and Sellers Need to Know About Home Appraisal Steps

Like most things in real estate, everything is negotiable. Although the buyer typically pays for the appraisal, it is possible to negotiate to have the seller cover the fee. The lender may require the appraisal to be paid in advance or may incorporate the cost into the application fee. Furthermore, the fee may be due on delivery of the valuation, or it may be due at closing. 

The actual inspection of the home may take as little as 20 minutes, or up to several hours. However, the appraiser also spends time evaluating the various records mentioned above. It usually takes about a week for the appraiser to complete the valuation. After which, a report will be sent to the loan officer, buyer’s agent, and lender. 

Just like the cost of properties varies by region, the same goes for the cost of a home appraisal. Depending on your area, you can expect to pay between $275 and $900.

[Related: Guide to Closing Costs in Washington State]

Getting an Appraisal to Buy a Home

If you’re buying a home with the help of a mortgage lender, the appraisal is very important. In the event that the appraisal is substantially lower than your accepted offer, the lender may refuse to fund your loan. 

But this isn’t all bad. You do have an option to renegotiate the price with the seller. Unless they have someone standing by to pay the full price in cash, they may be willing to lower their price. 

If the appraisal is too low for the lender and the seller won’t budge, it may mean it’s time to cancel the contract. While this might be emotional, you would be better off in the long run to have a home you can comfortably afford

[Related: Tips for Deciding How Much to Offer on a House]

Appraising Your House to Sell

Having an appraisal to sell your home is helpful in determining a fair asking value. However, it’s also important to consider market conditions

Depending on inventory, the market can lean toward being either a seller’s market or a buyer’s market. A buyer’s market indicates lower home costs because of an influx in inventory. If sellers are having a hard time selling their homes, they can compete by offering a lower price.

On the other hand, a seller’s market means there is low inventory. Houses in a seller’s market typically go on and off the market quickly. Buyers know they need to act fast to secure their new home. 

When it comes to the appraisal process during a transaction, the seller doesn’t necessarily have rights to the buyer’s appraisal. However, if a seller has an appraisal done, the buyer does usually have the right to this information. Some sellers choose not to have an appraisal done if it will indicate a lower value than the asking price. 

Tricky situations like these are why having real estate professionals in your corner is so important. From real estate agents to lenders, mortgage brokers, and appraisers, professionals with expansive experience in your area can keep you on the right track.

[Related: Seven Reasons Why Homes in Hot Markets Don’t Sell Right Away]

The Importance of Having Confidence in Your Appraiser

Professional appraisers should be licensed and certified. Federal regulations require that appraisers be impartial, with no direct or indirect interest in the transaction. 

The independent, impartial, and reliable valuations are crucial to purchasing and refinancing homes. If an appraiser has any incentive to provide a lower or higher value to the home, they are no longer considered impartial. 

Because the appraisal protects the lender, as well as the buyer and seller, they will usually order the appraisal themselves. However, the cost is usually the responsibility of the buyer. But as we mentioned above, everything is negotiable. 

[Related: Guide to Buying a Home in Seattle]

Seattle Mortgage Planners Is Here to Help

If you are looking to buy, sell, or refinance your home, it’s time to talk to a professional. 

You work hard for your money and your home, so you want to make sure you get the most value for it. You also want to make sure you invest wisely when purchasing a new home.

While this all may get confusing, having the right team behind you can make a world of difference. With Seattle Mortgage Planners, you will have a professional team with experience in the housing market and your location to guide you. 

Buying a home may be the biggest investment you ever make. Contact Seattle Mortgage Planners today to make sure your home buying process goes smoothly and to your advantage. 

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