The home appraisal is one of the most critical qualifying factors for a mortgage, whether you are a first-time home buyer, relocating to a new house, or refinancing your current property. Lenders require a home appraisal because they want to protect their investment. Read on to learn all about appraisals, and how they work.
What is an appraisal?
The purpose of a home appraisal is to determine the value of a home. During the home appraisal, a professional, third-party appraiser evaluates your home and then provides an estimate on its market value. You should expect an appraisal as part of the loan application process, so it’s best to know generally about how they work — and what a home appraisal includes.
How much does an appraisal cost?
On average, a home appraisal costs a few hundred dollars (though the price will depend on the size, location, and other factors of the property). For instance, a large home on a waterfront will typically cost far more to appraise than a small condominium.
When getting a home appraisal, your lender will require you to use a specific appraisal company. This means that you will be unable to shop around for an appraiser, so when you apply for a home loan, talk with your lender and ask which company will be hired to get the home appraisal done.
How do I improve my home’s appraised value?
You can try to improve a home’s appraised value in the following ways:
- Create a great first impression. Touch up the paint, and manicure the yard.
- Increase the “wow” factor. Stage the property to look like a model home.
- Clean up clutter, even in the garage.
What do appraisers look at during a home appraisal?
When appraisers evaluate a property, they look at just about everything a homeowner could imagine —square-footage, number of bedrooms and bathrooms, the property’s overall condition, and many more factors can impact the appraising of a house. Appraisers also look for issues with the property, such as cosmetic damage, plumbing or electrical issues, leaks, and so on.
Appraisers will also try to find comparable homes in the area to determine a property’s fair market value. By comparing similar properties in the same area, they can get a good sense of a house’s worth.
What happens after the home appraisal?
When the appraisal is completed, federal law requires the borrower to receive a free copy. The appraisal document contains a lot of information that can influence the appraised value of the property.
Here are a couple of things to review when you receive a copy of the appraisal:
- Make sure that comparable sales are really comparable. You might have a unique property that requires an adjustment to comparable sales.
- Check to make sure that the property is correctly described. For example, if a five-bedroom house is identified as a four-bedroom, it might inaccurately influence the value of the property.
What happens if I need to challenge the home’s appraised value?
If a home is appraised below the asking price, it’s best to review the appraisal with your mortgage lender. You might find inaccuracies that account for the low appraised value; for instance, an appraiser might not have noticed recent remodeling in your kitchen, or they might have compared it to the wrong types of properties nearby. These issues can be disputed, but you need to make sure you have a solid case. Without clear and noteworthy evidence to prove your point, a change to your appraisal is unlikely.
What happens if I get a low appraisal?
If you are the buyer, renegotiating the price with the seller could be an option. If you have the resources available, you could try to cover the difference yourself so you don’t need to borrow as much, which can bring down LTV and possibly even improve the mortgage rates you qualify to receive.
If you have questions about appraisals or just want to learn more about your home loan options, get in touch with Mr. Cooper today.