Real Estate Appraisals Are
For Lenders, Not Buyers and Sellers
Real Estate Appraisals are a necessary step in the home-buying process. So, it should be no surprise that they are a common denominator in most real estate transactions. Still, there needs to be more clarity about them, as Buyers, Sellers, Investors, and even Realtors sometimes think of them as home inspections, which they are not. Here's a quick look at more of what you need to know!
- What Happens if The Appraisal is Lower Than The Offer
Can You Talk To The Appraiser?
The Main Goal of the Appraisal is to Protect the Lender
Appraisers Typically Use Either the Sales Comparison or Cost Approach
A real estate appraisal is not the same thing as an inspection
What all goes into an appraisal?
7 Home Appraisal Tips Video
A common question about appraisals is: What happens when they are less than the amount of a Contract Offer To Buy?
It's a common misconception that a low appraisal spells doom for sellers. However, it's not the end. Low appraisals offer opportunities for both buyers and sellers to negotiate and find solutions. Armed with knowledge about real estate appraisals, you can proactively address potential issues and ensure a smoother transaction.
Can You Talk To The Appraiser?
Yes, you can! Guidelines permit real estate agents, or individuals with a stake in the real estate deal, to engage in dialogue with the appraiser and furnish extra property details, such as a copy of the sales agreement. It's important to note that neither an agent nor any other party involved in the real estate transaction can use coercion or bribery against an appraiser, and appraisers are not allowed to reveal confidential information under any circumstances.
The Main Goal of the Appraisal is to Protect the Lender
Lenders want to avoid lending money on property not worth its price tag. Consequently, they require the completion of appraisals before they approve loans.
The information contained in Real Estate Appraisals is invaluable to the lender. The lender will study the appraisal details before reaching a final decision.
Also, lenders frequently dictate the choice of an appraiser. It might have one in-house or through a contract. Other times, they have a short list of appraisers they'll accept. If you go with your own choice for an appraiser, they may be subject to final approval from the lender.
Appraisers Typically Use Either the Sales Comparison or Cost Approach
The sales comparison approach is when an appraiser compares the property to similar properties sold in the area and bases the market value on the comparables or comps. On the other hand, the cost approach reflects the costs to build a home and is, therefore, more appropriate for new properties.
The actual appraisal contains information about the subject property and comparisons of similar properties. There is an evaluation of the overall housing market within the area. The appraiser will then list any issues that might diminish the property's value.
Another component is a list of problems like bad roofs or weak foundations. The appraiser then gives an estimate of the sales time for the house. Finally, the report will indicate the type of property.
A Real Estate Appraisal Is Not The Same Thing As An Inspection
While an appraiser might report problems they see, they are not responsible for declaring whether the appraised home is in good condition. They are only responsible for assessing the property and determining the market value for the lender. A home inspection is a different process altogether.
Real estate appraisals only include the home, the land, and improvements to the same, but not personal property like appliances, heating, or air-conditioning systems. The buyers should purchase those items separately.
Everyone fears the possibility of a low appraisal. It happens all of the time, usually during closing. There are things you can do to remedy this common but stressful situation.
- The buyer can make a larger down payment.
- If this is not feasible, the seller and buyer can negotiate the price more.
- Additionally, either or both parties can always dispute an appraisal.
What All Goes Into An Appraisal?
Real estate appraisers consider a wide range of factors when assessing a property's value. Here are ten things they typically look at:
- Location: The property's location, neighborhood, and proximity to amenities and services.
- Property Size and Layout: The size of the land, the building's square footage, and the property's layout.
- Condition: The overall condition of the property, including any needed repairs or updates.
- Comparable Sales: Recent sales of similar properties in the area, which help establish market value.
- Age and Construction: The property's age and construction quality, including materials used.
- Improvements and Renovations: Any enhancements or renovations made to the property.
- Zoning and Land Use: Local zoning regulations and land use restrictions affecting the property.
- View and Lot Characteristics: Features like views, topography, and lot size.
- Market Trends: Current real estate market conditions, including supply and demand.
- Environmental Factors: Potential environmental issues or hazards on or near the property, such as flood zones or contamination.
Appraisers consider these and other factors to arrive at a comprehensive valuation of a property.
7 Home Appraisal Tips Video
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