There?s so much that happens behind the scenes of the home buying process. When the search is over and the home you?ve chosen goes under contract or into escrow, the ?due-diligence? period begins. Your agent will carry the responsibility of this investigative process for you but it?s still important to understand what?s happening. Today, we?re going to dive into the appraisal.
The appraisal is the last step of the due diligence process. It?s an ?estimation of a home?s current market value? (inman). An appraisal is ordered by the lender and owned by the buyer. The seller only receives a copy if the buyer agrees to share one. ?An appraisal determines the value of the home to ensure the price reflects the home?s condition, age, location, and features such as the number of bathrooms? (Investopedia). Simply put, they?re important to make sure you?re being offered a fair price for your home.
An appraisal is carried out by a certified professional who is familiar with the area. According to federal law, ?the appraiser must be impartial and have no direct or indirect interest in the transaction? (Investopedia). Appraisals cost an average of $300 – $500 depending on the size of the home and are paid for by the buyer. They are unavoidable since the lender needs this information to properly approve a mortgage or loan but worth the price regardless.
You might ask us, why do I need an inspection and an appraisal? Aren’t they essentially the same thing? Inspections and appraisals, while similar in their investigation, do serve a different purpose. Inspections look in detail at a property?s condition. They look for anything that needs repair or replacement like rotting floors, foundation issues, leaky windows, faulty wiring, etc. The result of an inspection will tell you how many projects you?re about to inherit and approximately how much they?ll cost you. An inspector will oftentimes give you suggestions to move forward as well. An appraisal is simply assessing the home value. ?The appraiser considers the home?s condition as part of the analysis of how much the property is worth, as well as other factors, such as the local housing market? (Nerdwallet). ?The appraiser doesn?t make recommendations for repairs.?
The local market won?t influence your inspection but it could influence your appraisal. Neighborhood characteristics, local market trends, and home sale prices nearby could raise or lower the value of the home which in turn affects the sale price. No matter how great the condition of the home is, a poor market and low sale prices in the area could inadvertently bring the appraised value down. This could cause tension between the buyer and seller because the buyer will insist on a lower price but the seller stands by the value the property has on its own. This is one of those moments you?ll want a strong real estate agent to negotiate a fair deal and ensure you?re not getting oversold.
What else is factored into an appraisal and how long does it take? The appraisal itself will take a few hours but scheduling an appraisal can take some time. We know you want to move as soon as you can but depending on your location, it can sometimes take months to get an appraiser to a property.
QuickenLoans has a really thorough checklist of what is included in an appraisal. They?ll look at ?health and safety hazards, the structural integrity of the home, condition of the home, any upgrades or improvements, visible defects, and any conditions set by the lender.? If they feel like they need additional inspections for things like the roof or foundation, they?ll order them before making an official report.
Besides the condition of the home that is also evaluated with the inspection, an appraisal will look at:
- The amount of acreage or land the property comes with
- How many bathrooms and bedrooms the property includes
- Liveable space other than bathrooms and bedrooms
- The type of garage, if any
- Curb appeal (it?s not just a trend!)
- The age and quality of an HVAC system
- Is there a basement, crawl space, attic, and what?s the quality
- Pest issues
- Quality of appliances and whether they are energy efficient
This is just a sample of items an appraiser will include in their investigation. It helps us understand why the actual appraisal takes several hours. Anything they feel is important to the final assessment will be addressed within their report whether you?re expecting it or not. Once an appraisal is finished you can move forward with the sale price, request a price reduction, or walk away from the deal altogether. Working with a real estate agent that you can trust will help you make the best decision for your family.