The home appraisal process can be used to help sellers properly list real estate, assess home improvements, and insure against financing issues in shaky markets. Although there is no substitute for the aid of a qualified professional when you get ready to appraise, knowing the basics ensures you get the best service. Let’s take a look at the most important things to know.
Determining a Home’s Value
A professional home appraiser understands the difference between marketable home improvements and personal niceties. Pros also have a knowledge of trends in the local property market — neighborhood mores can make quite a difference in the price of a home. Because appraisers are required by federal law to be a disinterested party in any appraised property, they will judge these things impartially using Fannie Mae’s Uniform Residential Appraisal Report.
During an in-home inspection, your appraiser will account for the floor plan, extra amenities, square footage, bedroom/bathroom numbers, and potential repairs to be done.
The Appraisal Report
Though appraisals may differ on small details based on state regulations, there is certain information every report will include as a federal standard:
- Public land and tax records
- A physical approximation of the building exterior
- Photographs of the home from important angles
- Photographs of properties used as comparison homes
- Written report of the calculation of square footage
These data points are used to determine the fair market value of the property. Fair market value is defined as the price a property would sell for on the open market, considering all parties have reasonable knowledge of the property and are free of any pressure to make a buy or sell.
The Consequences of the Appraisal
It is important for a professional appraiser to be completely impartial, because the results of the appraisal report can bring about various consequences for a property owner or the sales process.
For instance, a homeowner can be on the hook for extra monthly insurance payments if an appraisal report lowers the equity of a home below a certain threshold (usually 20% of the home price). A low appraisal on one home can also affect the pricing on surrounding homes.
The appraisal is also an essential part of the closing process. If an appraisal price is lower than the home contract price, it can completely end the sale. Fortunately, the law does account for appraiser bias or inaccuracy. If you don’t like the number that shows up in an appraisal report, you can get a second opinion.
Your Next Move
If you are in need of an appraisal for a sale or a refinance, make sure you take all of the information above into account. Prepare for a second opinion, which shouldn’t be too expensive (appraisals don’t often run above $500, and it should always be a flat fee).
An appraisal can also serve as a wake up call. If your appraisal is coming in lower than you would like, you can see where the home can use improvement in the report. Fix those things before you get another opinion.