A home appraisal is a critical and essential part of homebuying and refinancing. Home appraisals are a requirement that professional and certified appraisers perform during mortgage refinances and transactions. Per the National Association of Realtors, appraisal issues are often one of the significant reasons for closing delays. Therefore, it is vital to understand the home appraisal process, how an appraiser determines its value, and more.
What is a Home Appraisal?
A home appraisal is an assessment completed by a professional and certified appraiser to determine how much a home or property is worth. The inspections help determine if the home or property’s contract price is fair, given the condition, location, and features. In addition, since the home or property is collateral for a mortgage, appraisals help ensure that buyers are not borrowing more than what the home or property is worth.
While home appraisals are necessary in most homebuying and refinance cases, appraisals are not required if a borrower pays with cash. However, occasionally, cash buyers order a professional evaluation to ensure they are not overpaying for a property.
How do Appraisals Work?
Before lending or refinancing, mortgage lenders require a detailed home appraisal. However, neither the buyer, seller, lender, nor real estate agent gets to select who assesses to avoid a conflict of interest. In 2009, the Federal Reserve established the Home Valuation Code of Conduct (HVCC) to ensure unbiased property assessments. In addition, the HVCC helps to eliminate mortgage fraud and misconduct.
Most mortgage lenders use an Appraisal Management Company (AMC) to assist with the appraisal process. Appraisal Management Companies have a pool of professional and qualified appraisers to administer appraisal assignments and assist with the ordering, tracking, and delivering of appraisal reports. Once the home appraisal is complete, the AMC will provide the report to the mortgage lender. Mortgage lenders and anyone associated with the home sale or refinance are not allowed to speak with the home appraiser and can only communicate with the AMC.
What Happens During an Appraisal?
A professional appraiser will thoroughly assess the home or property for sale while considering several factors, including location, lot size, and comparison to other properties within the area. Other factors the appraiser will take into consideration are:
- The location of the property.
- Lot size.
- Zoning classification.
- Square footage of the house and lot.
- The layout of the house.
- Condition of appliances.
- Amenities, such as a swimming pool or fireplace.
- Age and state of the foundation, roof, walls, and structure.
A complete and formal appraisal report often includes:
- Photos of the home’s exterior.
- Details about the square footage calculations.
- A street map showing the home’s location.
- Recent home sales nearby.
After a home appraiser finishes assessing the home or property, they will gather all the information into a formal report and deliver it to the mortgage lender, taking up to 7-10 days to complete.
The sale can continue if the appraisal value meets or exceeds the loan’s value. However, if the appraisal falls short of the asking price, prospective buyers can request the seller to lower their selling price.
Home Appraisals for Refinancing Mortgages
Occasionally, homeowners refinance to take advantage of lower mortgage rates to reduce their monthly mortgage payments. Sometimes homeowners need to refinance to withdraw some of the home equity and use that money for other purposes, such as medical payments, college funds, or home improvements.
To refinance, homeowners will apply to a lender to begin the refinancing process. Typically, a mortgage lender orders a current appraisal to ensure the new mortgage balance does not exceed the recovery value of the property.
How Can You Prepare for an Appraisal?
For Sellers
- Make Minor Repairs. Fix the leaky faucet or shower head. Secure the loose stair railings or light bulbs that have gone out.
- Freshen up paint. Paint is a simple and easy way to freshen up a home.
- Tidy up. You cannot move walls, but you can move, add, or remove furniture and décor to help make your home feel bigger.
For Buyers
- Know contingencies. Some home purchase agreements include an appraisal contingency allowing buyers to walk away if the appraisal is lower than the selling price.
- Do not be pressured into making a higher offer. A competitive housing market can often tempt buyers to offer more than a home is worth, but don’t feel obligated to do so if it is not within your budget.
- The outcome of the appraisal is out of your control. As a buyer, you do not influence the appraisal results. However, if the outcome is not what you wanted, you have the right to back out or negotiate.
For Refinancers
- Make a list of improvements. Keep track of home improvements and repairs you have completed and provide details by providing photos and receipts.
- Declutter and clean. If an appraiser is coming to your home, spend some time cleaning and tidying up. Mow the lawn, rake leaves, clean the clutter and organize.
- Prepare your comps. Give the home appraiser a list of properties in the area that are similar to your property to help avoid a low appraisal.
Marimark Realty
Marimark Realty, home to the top buyer’s agents in Tampa, Florida, focuses on providing a personalized experience for buyers and sellers of real estate. As a full-service real estate agency, we help clients with luxury homes, homes for first-time homebuyers, commercial property, and investment property.
To begin the journey of purchasing or selling your home or purchasing commercial or investment properties, contact us at your earliest convenience.