How Does a Home Appraisal Work?
During most real estate transactions, it will be necessary to have a home appraisal completed. This formal process of evaluation is the most effective, un-biased way to determine the current value of a home for everyone involved in the transaction. While the concept might not seem confusing, there are several misconceptions that can make the process seem complicated. Understanding what the appraiser does and how their evaluation plays a role in your financing can make the transaction easier. Home values fluctuate because of a variety of factors including supply, demand and regional influences. A home appraisal determines the current market value of a property on the date the inspection is completed. Since this value will be used by the lender to determine the loan amount, an approved, reputable appraiser must be hired to complete the evaluation. It is important to note that the formal appraisal report is filed with a national bureau when financing is being used from FHA, FNMA and Freddie Mac. The report and the property value is registered with the national database and kept on file for six months. This keeps buyers and sellers from “shopping around” for a different value. The lender will order the appraisal from a separate third party appraisal vender. The appointment for the real estate appraiser to visit your property (or the property you're looking to buy) is set by the assigned appraiser with you or the real estate agent. There are some key things to prepare for to insure you receive an accurate appraisal for your home:
Major repairs - water damage and broken structures need to be repaired.
Health & Safety Issues - bare wiring, mold, damaged stairs will need to be restored to safety standards. Smoke and CO2 detectors must be present and in working order.
In-progress Construction - all work should be completed.
Excessive Clutter - the appraiser must get a clear view of the basic structure.
It is suggested to be present while the appraiser is at the home. By law, your loan officer cannot be present and cannot speak to the appraiser.
There are several methods and formulas utilized to calculate the final home value. Prices of other similar homes that have recently sold in the area are assessed and adjustments are made for features that are not the same. A Cost to Re-build the home in today's market is also included. If the appraised value is at or above the expected value - this is good news! If the value comes in below expectations, most sellers and homeowners experience concern. Always talk to your realtor and loan officer to find out all of your options. A home appraisal is a vital piece of the process when buying or refinancing a home *Always check with your mortgage professional for acceptable extenuating circumstances and any other changes that may have changed to the programs listed since this printing.
ABOUT THE AUTHOR
Toni F. Ryan | NMLS#230507
Senior Loan Officer | Pinnacle Home Loans
Toni F. Ryan has over 20 years experience in mortgage lending - both on the wholesale and retail levels. She believes that education is key to making the best decision for YOU! She shares her insight into the lending world here and encourages your feedback. Don't forget to connect on Facebook!