The dictionary meaning of appraisal is “an expert estimate of the value of something.”
A home appraisal is the current fair market value of a property estimated by a certified appraiser. Mortgage lenders use home appraisals to determine the loan-to-value amount.
Lenders will not issue mortgage loans higher than the appraised value.
But a home appraisal isn’t just a monetary figure on a piece of paper. It is a detailed document that describes what makes a house valuable as well as the value of the house relative to other properties in the neighborhood.
Home Appraisal Cost According to recent data, the average home appraisal cost for a residential property is $450.
The cost isn’t uniform, but it is included amongst closing costs. Thus, the homebuyer foots the bill eventually. Expect to pay between $350 – $600 for an appraisal on a home. Factors that affect the appraisal cost Home square footage Type of Property Property location Land square footage Extensive damage or repairs Company doing the home appraisal.
Importance of Home Appraisals Lenders want to be sure that they aren’t offering mortgage solely based on a seller’s subjective opinion. An independent assessment is more objective and acceptable. On one hand, a home appraisal protects you and your lender from paying too much for a home. And on the other hand, it protects the bank from getting stuck with dead weight whose value doesn’t match their investment. The URAR, or Uniform Residential
If the appraised value is considerably less than the purchase price this creates be big problem. A lender will not process a loan for an amount that exceeds the appraised value of the home.
Lenders treat an appraiser report as the final word on the value of a home.
If that value is less than the amount in your purchase mortgage application (called an under-or short appraisal), the lender can’t process the loan. You would either have to cover the difference (an unforeseen glitch you may not have prepared for), or impress on the seller to reduce the price.
Sellers don’t have many other options because the appraisal amount will be relatively the same with any appraiser, and buyers will not be able to obtain loans for more than the appraised value of the home. There are only three things you can do when the appraisal is less than the purchase price You and the seller would have to agree to a purchase price equal to the appraised value Pay an extra down payment to make up the difference Cancel the contract.
Tips for sellers to increase the home appraisal value Repair:
Paint interior walls
Trim bushes and mow lawn
Touch up exterior paint
Replace broken or outdated fixtures, lights, fans, and door handles
Leave the blinds open to allow more natural light in
Paint colored walls a neutral color
Clean the home from top to bottom
Polish floors and steam clean carpets
The home appraisal process is conducted by an independent professional/expert, which reinforces the validity of the estimate in the appraisal report.
Inspection Usually walk-in (interior appraisal), although a drive-by (exterior appraisal) is an available option.
Mortgage lenders require both types, especially interior appraisal.
The objective of an inspection is for the licensed appraiser to get a first-hand feel of the house, noting its size, function, condition, and quality.
Comparable Refers to properties very similar to the appraised home that the appraiser check to come up with a fair market value of the appraised home.
Final Appraisal Report Compilation of relevant data and house estimate.
How Long is a Home Appraisal Good for?
Home appraisals are only valid for a set period, regardless of loan type. However, this set period aptly called, “term of validity,” differs between loan types. The term of validity varies wildly. It could be as low as 60 days (2 months) or as high as 180 days (6 months).
For example, while FHA appraisals are good for 120 days (4 months), VA appraisals are valid for 180 days (6 months).
These limits aren’t set in stone. When market conditions fluctuate rapidly, validity typically drops. And there are very special circumstances when the FHA allows validity of up to 240 days (8 months).