A good home appraisal is one of the most important components of getting approved for a mortgage.
This appraisal ultimately decides just how much a bank is willing to lend to you, and a bad appraisal can kill your plans for a new home faster than a bad credit score.
A home appraisal is the best way for a lender to see if they wont lose their seat on the deal.
The lender wants to make sure that they have an asset that they can sell to get their money back in case of default. The home appraisal is also a way for you to see if the home you are wanting is overpriced or not.
Lets say that John Doe wants to secure a mortgage on a home that cost $180,000. His credit score is very good, yet the home only appraises for $150,000.
Will John get his loan? You better believe he won’t. The sale price will have to be lowered for the lender to consider to loan John the money. This is also a warning for John, that the home that he is trying to secure may be overpriced.
So what does an appraiser look for?
An appraisal usually starts with an inspection of the inside and outside of your home, as well as sale and ask prices for comparable homes in the area.The appraiser will create a report for the lender that includes:
- An explanation of how the appraiser determined the value of the property
- The size and condition of the house and other permanent fixtures, along with a description of any improvements that have been made and the materials used
- Statements regarding serious structural problems, such as wet basements and cracked foundations
- Notes about the surrounding area, such as new or established development, rural acreage, and so on
- Evaluation of recent market trends of the area that may affect the value
- Comparative market analysis that supports the appraisal: maps, photographs and sketches
An important thing to note is that, an appraiser is not a home inspector. An appraiser will make note of obvious issues but dose not inspect the home to see if it is up to code. For this you will actually need to hire someone to do a home inspection to avoid any costly nightmares in the future if something is wrong with the house.
How much is this going to cost me?
Appraisals typically cost in the range of $300- $400. This price can change though depending on the location of the property, square footage of the home, or property type. The appraisers fees are usually included in the closing costs of the home, unless a deal on the property is not made.
Is it time to throw in the towel if the appraisal is too low?
First you need to see why the appraisal was low. It could be something that the homeowner could correct, or the home could be overpriced. If it is overpriced see if the homeowner would come down on their price. You can also request another appraisal on the home, keep in mind that you are the one paying for these appraisals.
As a seller what can you do to make up for a bad appraisal?
The first thing you need to do is see why it was appraised lower, it could be because of maintenance or repairs. If this is the case you can get another appraisal after they have been fixed.
Another way to increase the appraisal price is cosmetics, especially in an older home. New paint, appliances, carpet and replacement windows are all ways to add to the value of your home.