Whether buying a new home or selling a current one, appraisals are an important part of both processes. Having a home appraised is helpful for both home buyers and sellers, so everyone needs to know what appraisals do and how to get the most out of them.
What Is a Home Appraisal?
A home appraisal is when a professional appraiser comes to the home and inspects it in order to come up with the most accurate price estimate possible. Home appraisals are done both when buying and selling a home. While sellers often choose to use an appraisal to decide on a price for their home, buyers will also get a home appraised if they intend to buy it. Many mortgage lenders require an appraisal in order to ensure that the home being purchased is worth the money being lent.
How a Home’s Value Is Determined
The price of the home affects a buyer just as much as it does a seller. Because of this, there is a federal regulation that all home appraisals must be done by an impartial third party who cannot be influenced by either side of the sale. This helps ensure that the appraisal price isn’t artificially inflated or deflated in order to help either the buyer or seller.
There are many factors that can influence a home’s price, such as other recent home sales in the area, the housing market in general, the home’s size, and even the floor plan. In most cases, appraisers will use the Uniform Residential Appraisal Report for their inspection, which was made by Fannie Mae and uses the home’s interior and exterior to compare sales with other homes in the neighborhood.
What Sellers Need to Know
If a seller prices their home without the help of an appraisal, it can be a risky move because the buyer will always have the home appraised. If the appraisal turns out to be less than the selling price, then the sale won’t go through. Mortgage lenders require all home buyers to have their new home appraised to ensure that it’s worth the amount of money it’s selling for, so they will refuse to lend if the two prices aren’t the same.
However, if the seller thinks the appraisal was inaccurate, then they may also hire their own appraiser to get a second opinion. Sellers should try to get their home appraised before putting their home on the market.
What Buyers Need to Know
As stated previously, mortgage lenders require appraisals from all home buyers in order to qualify for their loan. This is in place primarily to protect the lender from a bad deal, but it also helps the buyer because it prevents them from overpaying for a home that isn’t worth the money. If an appraisal comes back and it’s lower than the agreed-upon selling price, then buyers can also use this to their advantage. For example, they can use this difference to open up the floor for renegotiation to get a better price.
The home appraisal may seem like a small or insignificant part of a home sale, but it’s actually very important. Keeping all of this in mind can help both buyers and sellers navigate their home sale and use their appraisal to their advantage.