4 Things to Know About Appraisals
An appraisal might not be the most well-known step in the homebuying journey, but it is a critical one. Get more acquainted with appraisals by reading up on these 4 important points!
What is an Appraisal?
An appraisal is an unbiased professional opinion of a home’s value. Appraisals are used on purchase-and-sale transactions and refinances. In a purchase-and-sale transaction, an appraisal is used to determine whether the home’s contract price is appropriate given the home’s condition, location, and features. For a refinance, an appraisal assures the lender that it is not handing the borrower more money than the home is worth.
Why You Need an Appraisal
Before granting a loan, a lender must ensure they have an independent, impartial estimate of the property’s value. Appraisals help lenders ensure that homeowners are not over-borrowing for a property because the home serves as collateral for the mortgage. If the borrower should default on the mortgage and go into foreclosure, the lender will sell the home to recoup the money from the loan.
If the appraisal comes in at or above the contract price, the transaction proceeds as planned. If the appraisal comes in below the contract price, however, it can delay or derail the transaction.
What Goes into a Home’s Appraisal?
An appraiser looks at a number of factors in the home to determine its value. Some of the things that appraisers consider when they determine a home’s value include the basic condition of the home, upgrades or improvements made to the house, square footage, and the number of bedrooms and bathrooms. Additionally, the appraisal value is influenced by recent sales of similar properties and by current market trends.
When Does an Appraisal Get Done?
Normally, an appraisal happens early on to ensure the property is a feasible option. As a general rule, the buyer typically pays for the cost of the appraisal, and most single-family home appraisals cost between $300 – $400, while multifamily units typically cost upward of $600.
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