Home Appraisal 101
When a home buyer gets a mortgage, the lender often asks for the appraisal of the subject property. An appraiser does the appraisal. So what exactly is an appraisal and why do lenders ask for it?
Well, an appraisal is nothing but an unbiased determination or calculation by an accredited appraiser of the current fair market value of the house/property. Lenders ask for the appraisal to know the real value of the property and if it meets the guidelines of the loan. For instance, the goal is to make a smaller down payment while having a low credit score, the lender will be more interested in making sure that the property, collateral for the requested loan, is actually worth lending the requested amount.
Inspection by the Appraiser
To estimate the current fair market value of the property, the appraiser usually visits the house and inspects both the interior and exterior. This inspection is different than the inspection made by a homeowner. Also delaying the appraisal to clean the property will not give you higher appraisal value but it will only increase the lengthy process.
Factors Considered By The Appraiser
An appraiser considers many factors to make a final estimation of the house’s value. The appraiser forms an opinion considering the value and sale of comparable houses in that particular area, in addition to many other factors. Some of the other factors that appraiser use to make an accurate report include;
- The exterior of the house such as structural aspects, roof, walls or its foundation. This may also include damage or defect in the general construction. Any issue with the foundation or roof of a property may determine it as unlivable.
- Size of the house is another factor considered during the evaluation. An appraiser considers the total square footage and functional layout of the house along with the number of bathrooms and bedrooms.
- From an appraisal point of view, the interior of a house is as critical as the exterior. This involves inspection of the condition and material of doors and windows, plumbing, flooring and electrical systems. The quality and number of appliances, bathroom, and kitchen along with other important factors.
- The neighborhood and location of the property also creates a huge impact on the value. An appraiser may also use comparable sales i.e. the prices of the houses present in the neighborhood, having similar size, age, and construction.
An appraisal should never be considered as an exact science. It is just an estimation and opinion of the house’s value. This appraisal is based on different valuable factors, the house’s condition, and comparable sales value. In simple words, appraisers look for all those items that create a direct impact on the house’s value.
The final evaluation is typically based on the trends of the real estate market, specific characteristics and current sale price of the houses. The final report, however, includes all the information used by the accredited appraiser. The subject property details and any further explanation related to the valuation results are included as well. This report is then given to the lender who uses it as a guide to make the loan decision.