When you are buying a home, you will likely hear the word “appraisal” come up often, and you may find yourself wondering about the home appraisal process and how it affects you.
A home appraisal is conducted by a licensed home appraiser, who conducts an inspection of the property to determine what it is worth; this may not necessarily be the same as the asking price. Once completed, the appraiser will put their findings into a report and determine the home’s value. If you are getting a home loan, your lender will most likely handle the appraisal, because they want to ensure that they are not lending you more money than the property is worth.
An appraiser is licensed by the state and is a truly neutral party in this. They cannot have any personal interest in the property, because that can change the outcome of the appraisal. This industry is highly regulated to ensure that appraisers are completely neutral parties.
How do Appraisals Affect You as the Buyer?
When you are taking out a mortgage loan, your lender will use the appraisal as a determining factor for how much to loan you. Lenders will often require you to include an appraisal contingency in your offer, to make sure that your loan will not exceed the property’s value. If your offer is more than the appraised value, there are a few things you can do.
Make up the Difference
One thing you can do is make up the difference in the offered price and the loan amount yourself. This is usually done by increasing the amount of your down payment. This is not always a doable option for a buyer, but if there is a small enough difference for you to make up, this may be a good choice.
If making up the difference is not an option for you, but you are completely in love with the house, you can always try to negotiate a lower price with the seller. Depending on the seller’s situation with selling the house, this can be difficult sometimes, but it never hurts to ask.
If you cannot pay the difference on the loan out of pocket, and the seller is not willing to lower the price, you can back out of the purchase agreement. This is where having put an appraisal contingency in the purchase agreement is key. If this contingency is included, it means you can back out of the deal without any penalties to you.
Having included that contingency in your purchase agreement also means you can get your earnest money deposit back.
How is a Home Appraised?
When a home is appraised, the appraiser will conduct a thorough inspection of the property, taking all factors into account. The factors include any upgrades or additions, the condition, lot size, and other properties that sold recently of a comparable condition and size in the same market.
Maximizing the Value
There are a few things you can do before the home appraisal that can help you maximize the value of your property. If you have ever made any upgrades to the property, make sure you have a list of them, this can matter to the appraiser; having copies of invoices or paperwork associated with the upgrades is also helpful.
This includes taking care of any minor fixes that are needed, like fixing a leaky pipe or a squeaky door. While these repairs may not seem like much to you, they are factors that are included in the appraisal.
Your curbside appeal also matters, so taking the time to make your landscape look nice, and fixing things like clogged gutters or a broken fence can help.
Smaller cosmetic upgrades will also help; it is amazing what simply adding a fresh coat of paint or replacing old light fixtures can do.
If your home is clean spotless, you are more likely to receive a higher appraisal than if it is cluttered and dusty. Also make sure there are no pests and rodents, or evidence of them. This will impact your appraisal value.
Sometimes the seller may not agree with the value that the appraiser settled on. You can ask your realtor to look into it and find out why certain decisions were made about the property value. There is a possibility that the appraiser made a mistake, but it is also likely that your opinion on the value of your home is biased and different from that of the appraiser.
If you disagree with an appraisal you can request a new one, but there may not be much change between the two, so make sure you have a good cause for this request before doing so.
What is Included in the Appraisal Report?
When you receive the appraisal report, you can expect to see side-by-side comparisons between your property and other similar properties that have sold recently or are currently for sale, along with an evaluation of the current market in your area.
The appraiser will also include anything they found that may be harmful to the property value, like cracks in the foundation or water damage, along with anything else they found that is problematic — the touchy garbage disposal, signs of pests, or the broken dishwasher.