What is a home appraisal?
A home appraisal is an objective opinion of the home’s value performed by a licensed professional. Since the appraisal is related to the home value and loan amount, it can impact your loan’s down payment and interest rate. An appraisal that comes in too low can cause the transaction to be delayed or, in some cases, denied or withdrawn.
During a new home purchase, refinance, or when applying for a Home Equity Line of Credit (HELOC), Mortgage Equity Partners (MEP) may require an appraisal. MEP and other lenders use home appraisals to determine the relationship between the property’s fair market value and the requested loan amount.
For a loan to be approved, in most cases, an appraisal is required to determine the property’s value as collateral against the loan. Said another way, since MEP, as the lender, is lending you the money for the property and it is the collateral for the loan, we have an interest in ensuring it is worth the asking price. The information from the appraisal is used in many important ways.
A home appraisal is required when a homebuyer is financing the purchase of a property.(1) A home appraisal is not required if you are an all-cash buyer. In some Fannie Mae transactions, the borrower may be eligible for a Property Inspection Waiver or (PIW). In this case, the loan may be approved without a full appraisal. PIWs are issued, and the appraisal is waived if there is substantial and verifiable proof that the home value matches the loan amount.
What do appraisers evaluate to determine a home’s value?
- Overall Condition of the House – The overall condition of the house is determined by examining the age and maintenance of the major structures, such as the roof, windows, siding, etc.
- Square footage and lot size – Generally, homes with more square footage and larger lot sizes appraise higher.
- “Comps” – They use comparable sales of recently sold homes in your area with similar features to help determine value.
- Location and surrounding amenities – Homes in desirable neighborhoods with good school districts and easy access to amenities tend to appraise higher.
- Quality of Home Features – Upgrades like new kitchens, bathrooms, and energy-efficient features can add value. Outdated finishes or structural issues can bring the value way down.
- Curb appeal – Curb appeal may influence how appraisers view the home’s overall condition. A well-maintained exterior reflects pride of ownership and suggests that all aspects of the house have been well cared for over time.
- Unique Home Features – If a home has unique features, ensure your realtor has the documentation to share with the appraiser to help raise the value.
- Built-ins and additions – Much like the unique home features, if you make improvements or additions the appraiser may not be aware of, be sure to share that information with the realtor, who may have better access to the appraiser.
What is a home appraisal fee?
A home appraisal fee is the cost of the appraisal, and the borrower pays it. An appraisal for an average single-family home can range from $300 to $800, with the average price falling in the $500 to $599 price range, according to a survey conducted by the National Association of Realtors in 2023.(2)
What is an appraisal reconsideration of value?
If a borrower believes their appraisal is inaccurate, they can ask to have it re-analyzed for a reconsideration of value. If a borrower has additional information that the appraiser may not have known at the time of the appraisal, they may be able to provide the information to help the appraiser more accurately assess the home’s value.
What homebuyers should know about appraisals
When you want to buy a home, the appraisal is a critical part of the closing process. Two things can happen with a home appraisal. It can come near or above the contract price, and all is well. However, it can also come in below the contract price, which can delay or stop the transaction. All lenders have a strong interest in the property and cannot lend more than the home is worth. On a positive note, this opens the door to negotiation for the buyer to try to get a lower sales price.
When refinancing or applying for a HELOC, the appraisal must show a loan-to-value ratio of at least 80% to proceed with the transaction, although this can vary depending on loan type. Contact one of our licensed loan officers for the specifics of the loan to value and other requirements.
Regardless of what type of transaction you might be considering, everyone can benefit from a basic understanding of what a home appraisal is and the home appraisal process. An appraisal that comes in above or below a home’s asking price can impact final negotiations between buyers and sellers. For buyers, understanding the appraised value helps ensure they are not overpaying. For sellers, focusing on the right improvements can add value and lead to a more successful sale.
If you have any questions about the appraisal process, contact us to discuss!
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