Dec 22, 2009

Ten things you need to know about Home Appraisals

Obtaining an appraisal from a certified appraiser who specializes in the market in which you are purchasing or selling a home is a critical step in every real estate transaction. An appraisal is a determination of a property's market value and what it will most likely sell for on the open market. An appraisal should not be confused with a Comparative Market Analysis, or CMA, made by a Realtor.
CMAs help sellers determine a realistic asking price. While an experienced Realtor will come very close to an appraisal price with their CMA, an appraiser's report is more detailed and the only report a bank will accept when deciding whether or not to lend money.
10 Important things to know about the appraisal process, according to Virginia Cook:

  1. An appraisal provides valuable information for the buyer and the seller, but the appraiser's primary mission is to protect the lender. Lenders want to avoid owning overpriced property just as much as they want to avoid lending money to irresponsible borrowers. That is why the appraisal takes place before the lender gives final approval of a buyer's loan.
  2. Appraisals are comprehensive reports that should include: details about the subject property; side-by-side comparisons of three similar properties; an evaluation of the overall real estate market in the area; statements about issues the appraiser feels are harmful to the property's value; notations about seriously flawed characteristics; an estimate of the average sales time for the property; the type of area in which the home is located.
  3. Factors that appraisers analyze to determine the value include the location of the home, its proximity to good schools and other public facilities, the size of the lot, the size and condition of the home and recent sales prices of comparable properties in the area.
  4. While appraisers aren’t interested in housekeeping or d├ęcor issues, they do notice signs of neglect such as cracked walls, chipped paint, broken windows, torn carpets, damaged flooring and broken appliances.
  5. Federal law requires states to establish minimum standards and licensing practices for real estate appraisers. Appraisers are licensed by individual states only after completing intensive coursework and internship hours that familiarize them with their real estate markets.
  6. The appraiser should be an objective third party (which means I can't interfere with this process).
  7. An appraiser’s responsibility to a buyer varies by the loan type. If the buyer is applying for a mortgage that will be insured by the Federal Housing Administration (FHA), the appraiser must survey the physical condition of the home and disclose potential problems to the buyer. An appraiser has no such obligation for non-FHA mortgages.
  8. An appraisal is not a substitute for a professional home inspection. The appraiser formulates an opinion of the property's value for the lender. An inspector educates the buyer about the condition of the home and its major components.
  9. If the appraiser's opinion of value is lower than the purchase price, the loan might be declined. However, there are options for the buyer. The transaction can sometimes survive a low appraisal if the seller reduces the purchase price, the buyer makes a significant down payment or a separate escrow account is set up to fund repairs that will increase the value of the home.
  10. The appraisal is typically paid for when applying for the loan (lenders will not accept dated appraisals).
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