Appraisal Basics

An appraisal is an unbiased estimate of a home’s value provided by a qualified professional appraiser. The appraiser creates a report based on a visual inspection, the current market, recent sales of similar properties in the area, and specific house features such as square footage, number of rooms, amenities, and more. Appraisals are used in almost every home purchase and are often used for refinances too.

Lenders require appraisals to help gauge their risk of offering a loan on the property; they are critical in determining how much the lender will approve for a home you wish to buy. A homebuyer may ask to accompany the appraiser during the walk-through of the property.

Appraisal Basics

The lender usually orders the appraisal. However, the borrower generally covers the cost of the appraisal fee. An appraisal is also required when giving a home to a family member as a gift of equity. Some government refinance programs do not require appraisals, such as FHA streamline refinances, VA interest rate reduction refinance loans and USDA streamline loans.

What Homebuyers Need to Know About Appraisals

What Homebuyers Need to Know About Appraisals

If the appraisal falls short of the purchase price you’ve agreed to, you could be refused a mortgage or offered a smaller loan amount than your original application. You will have to provide a larger down payment or renegotiate a lower price with the seller to make up the difference. Neither you nor the seller likely wants the deal to fall through. The homebuyer has an advantage; a low appraisal provides bargaining room to convince the seller to lower the price.

To help avoid an appraisal from preventing the sale, ask your Real Estate Agent for “comps” (also called a Comparative Market Analysis or CMA) before you agree on the final purchase price. This report allows you to see if you’re paying a fair price, and it is part of the information the appraiser uses to arrive at the appraised value.

Federal law entitles you to a copy of the appraisal. If it comes in low, be sure to get your copy. You can ask for a new appraisal if you can show that the appraiser missed a significant feature of the home or did not consider a recent comparable sale at a higher price.

Remember, an appraisal is NOT the same thing as a home inspection. Although an appraiser will look at the condition of a home and may note significant problems, this does not take the place of a home inspection. You should always have a professional home inspector make a comprehensive inspection before you finalize your home purchase.

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