Well, you did it, you found your dream house! Now that that part is done with, it’s time to cross all your T’s and dot all your I’s before you can call it home. One of the things to be done before you can close on your potential new home is the home appraisal. But, some might be wondering, what exactly is that?
The home appraisal is essentially a value assessment of the home and property. It is conducted by a certified third party and is used to determine whether the home is priced appropriately. What this does is protect you from over-paying for a home, but also it protects the company who is lending to you, which we’ll talk about in more detail below.
During a home appraisal, the appraiser conducts a complete visual inspection of the interior and exterior of the home. He or she factors in a variety of things, including the home’s floor plan, functionality, condition, location, school district, fixtures, lot size, and more. Upward adjustments can be made for things such as a home having a deck, a view, or a large yard. The appraiser will also compare the home to several similar homes that were sold within the last six months in the area. By doing this, they make sure that the home you are buying is selling for what similar homes like it have sold for, thus validating its listed price.
The final report must include a street map showing the property and the ones’ compared, photographs of the interior and exterior, an explanation on how the square footage was calculated, market sales data, public land records, and more. All of these things, in the end, help show how the appraiser came to the conclusion they did when they say whether or not the home appraised.
After the appraisal is complete, the lender uses the information found to ensure that the property is worth the amount they are investing. This is a safe-guard for the lender as the home acts as collateral for the mortgage. If the buyer defaults on the mortgage and goes into foreclosure, the lender generally sells the home to recover the money borrowed.
If a home does not appraise for the price it is being purchased for, a lender will not lend that money in order for the buyer to get the home because it puts their investment at risk. When this happens, the sellers and buyers have a few options. The sellers can come down to the appraised price, or they can try to contest the appraisal and show that the home is worth what it is being sold for. The buyers can try to come up with more cash down to the cover the difference in sales price and appraisal price (generally not recommended because then you are buying a home for more than it is worth), or if the seller will not come down on price, the buyer can walk away.
This is just a very short description of home appraisals and how they generally work. If you still have questions, we’d love to talk to you more about them and you can always call our office at 928-771-1111.