What is a home appraisal, and why do I need one?

July 10th, 2018

Home appraisal

What is a home appraisal? And why is it so important?

• A home appraisal ensures that you don’t overpay for a property
• Most mortgage programs require home appraisals
• Appraisals may identify other problems with the property, such as zoning issues

A home appraisal protects both you and your mortgage lender and prevents you from paying too much for a house.

What’s a home appraisal?

Mortgage lenders usually require a home appraisal to put a value on the property. Professional appraisers inspect the home and compare it to recent sales of similar property nearby.

They judge how much the differences (plot, location, upgrades/amenities, square footage …) between those properties and “your” home are worth. Ultimately, appraisers come up with a fair market value for the property.

Lenders often require an appraisal because they want to be certain that the home is worth its purchase price, and can be sold to cover losses if you default on your mortgage.

Of course, lenders don’t end up paying for their appraisals. More often, it’s the homebuyer. However, in some areas, the seller traditionally picks up the tab.

Appraisers are on your side

This cost means many purchasers see appraisals as undesirable. At best, they’re yet another charge on the long list that makes up closing costs. At worst, a low appraisal can torpedo a deal, snatching a dream home from a keen buyer.

However, there’s another way of looking at them. They stop you from paying too much for a property. And why would you want to pay over the fair market value for your next home? As importantly, many homebuyers use a low appraisal to renegotiate the purchase price. That can see them saving themselves way more than the appraiser’s fee.

What you get and what it costs

Typically, a home appraisal report includes:

1. Explanation of the valuation — Like math students, good appraisers show their work
2. A brief overview of the local market’s trends — Are prices currently going up or down? If so, how quickly?
3. Summary of the home’s characteristics — Its condition, size and any improvements that have been carried out
4. Other considerations — Has anything else about the home or its neighborhood affected the valuation?
5. Structural problems and defects — Any issues that the appraiser noticed that affected her valuation

It’s important to recognize that home appraisers are not home inspectors.  Don’t rely on their expertise to uncover structural problems because they won’t always have any. And, in any event, it’s not their job to look for them.

Appraisers typically value your property in several ways: the most-common “comparables” valuation, as detailed above, finds a value by comparing the subject property to other nearby sales. The “replacement cost” is what it would take to replace the home on that lot. And the “rental schedule” arrives at the value by considering rental income.

“Appraiser’s Package”

The National Association of Realtors recommends that agents and sellers should prepare a package of documents and make it available to appraisers when they arrive for the inspection. The NAR suggests that package should contain copies of as many as possible of the following:

• Plats — Detailed maps of the near neighborhood
• Surveys
• Deeds
• Covenants
• HOA documents
• Floor plans
• Specifications
• Inspection reports
• Neighborhood details
• Recent similar-quality comparables
• Detailed list and dates of upgrades, remodels and costs — with invoices, where possible
• Energy-efficient green features
• Sales contract

The more of those a seller and agent provide, the more accurate the appraisal might be.

Contact a Wallick & Volk Mortgage Advisor today at www.wvmb.com. We will guide you through the process of buying your dream home.