Home appraisals can have a big impact on your mortgage for your new home, so it’s important to understand what a home appraisal is and how it affects your home purchase. Learn more about the process below:
What is a Home Appraisal?
A home appraisal is a report stating the value of a property made by a professionally trained, licensed appraiser. Lenders order home appraisals to confirm a home’s value before the mortgage is finalized. The lender notifies their preferred appraisal management company, and the company chooses a random appraiser to come out and assess the home. This helps ensure an independent opinion is made by the appraiser without any influence from the lender.
How is the Appraisal Determined?
The appraiser will most often conduct a physical examination of the property, both inside and out. He or she will measure the square footage, count the number of bedrooms and bathrooms, and note any deficiencies, improvements, or renovations to the property. In addition to the physical inspection, the appraiser will compare the home to other similar properties in the area and evaluate the neighborhood and surrounding area. All of these factors are considered when determining the value of a home.
How is an Appraisal Different from an Inspection?
It’s important to remember that an appraisal is NOT a home inspection. Although both evaluations examine many of the same systems and details of a home, home inspectors are checking for defects and will most likely make estimates for repairs, while an appraiser uses their observations to make a determination of value. For example, an appraiser may make a note of any damages to a home, but he or she will not make recommendations to repair them. It’s important to have both an appraisal and inspection performed to reassure yourself that the home you are considering purchasing is in good condition and ready for move-in.
What Do the Results Mean?
The appraiser will put together a final report stating the home's appraised value and detailed information he or she used to arrive at that figure. Your lender will receive a copy of the report and compare it to the sales price. If the appraisal value matches the agreed sales price, the deal can move forward to closing. Most problems arise when the appraised value is lower than the sales price. A low appraised value can be a warning to the buyer that they could be paying too much for the home. Additionally, most lenders will not offer a mortgage amount that is higher than the appraised value. It’s important to examine the report carefully for any possible mistakes. If the appraisal is significantly lower than the sales price, it may be time to renegotiate the deal with the seller or withdraw from the deal altogether. Talk to your REALTOR® for advice.
There are lots of important steps to buying a home from signing the contract to closing. Check out our Austin Buyer's Guide for even more informative articles, including details about home financing. For answers to your questions about Austin real estate, please contact us!