Home Appraisal
Why do you need a home appraisal? A home appraisal is an important factor of the home buying and building process. In order to borrow money from a lender, the home has to be appraised to be as valuable as the sum being borrowed. A lender can't lend you more money than the property and home you will be using it on is worth. Thus, due to this fact, someone has to come out and "appraise" the home, or if you are planning to build the home, the plans and specs will need to be appraised. You will need to have a certified appraiser come out and determine how much your house is worth? How does an appraiser come up with the number they do from their home appraisal? Well, it is a process.
A home appraiser is paid for their opinion, backed up by some fact, or what your home is worth. A home appraisal is not always set in stone, and seems to magically come in right about where you need it to.
Home Appraisal Factors
The value the appraiser puts on your home is determined by various factors. One is the square footage, and bedroom and bathroom numbers. Others include the lot size, etc. How clean (tidy and organized) your house is does not make a difference in the value the appraiser puts on the home, other than a cleaner, tidier house makes a better impression. However, amenities and features are the factors that determine the number, not how clean the toilet is.
The next big factor of a home appraisal is the comps. What is a comp? A comp, or in other words, a comparable, is a way that a home appraiser can get an idea of the "market value" of the home. The cost of a home to build differs significantly from the "value" of the home. So, a comparable is the sales price of homes in the same area that have the same features--square feet, beds, baths, style, or type. These comparables can make a huge difference in what a home appraisal will come in at. When an appraiser makes a home appraisal they take your home and find homes in the area that are similar to yours, and that have sold recently (in a medium market this would mean homes that have sold in the past 6 months or so), and compare them. The goal of the appraiser is to find homes in the area that are similar to yours that have sold at or around the price you are looking for in your home appraisal.
For example, if you think your home is worth $250k, and need your home appraisal to come in at that for the loan type or funding you need, the appraiser would look for homes similar to yours that sold for slightly more or less than that. The appraiser does not look at the price the homes are listed at, only what they actually sold for. You can list your home for whatever you want, but what it actually sells for determines the value.
Home Appraisal Dispute
So, if you are selling a home and the contract on your home is signed, details are progressing nicely, and the buyers feel it is safe to go ahead with inspections, the results are acceptable, and you look like you are going to close on time, you will simply rely on the appraisal results so that a loan commitment letter can be issued. If for some reason your appraisal does not come in as high as you have agreed upon, or as high as you had hoped, there are a few things you can do: you can lower the price, or dispute the appraisal.
If you should choose to dispute the appraisal you will ask the lender for another appraisal, and they may do one of two things, they may send out a new home appraiser or ask the original appraiser to reevaluate the property.
Sometimes the appraisal comes in too low because the comps used were not good comps. If you think this is the case for you, then ask your agent to find out which houses were used as comparables. Most appraisers haven't seen the comps up close and personal the way agents do. The home appraiser might have unknowingly used houses that needed a lot of work. If poor condition is verified, ask the appraiser to investigate the comparables to see if adjustments should have been made. This may make a significant difference in your home appraisal.
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