Home Appraisals: What You Need To Know
Home Buyer
Home Buyer
Home appraisals (aka: property appraisals) are a key component of every real estate transaction. The purpose of a home appraisal is to have an unbiased professional inspect a property and determine its fair market value (FMV). They are necessary when someone is buying, selling, or refinancing a home. Home appraisals include a physical inspection, as well as an analysis of the market and comparable home values.
In an appraisal, a licensed appraiser will visit the property and conduct a physical inspection. Additionally, they will look at the current state of the market, demand, and comparable homes in the area to determine the home’s worth. The determined worth is referred to as the appraisal value, which is usually the same as Fair Market Value (FMV). Home appraisals are the best way to determine Fair Market Value (FMV) because an unbiased professional is in charge of managing the inspection.
Banks only provide loans up to the appraisal value. If the sale price of a home is higher than the appraised value, the buyer will need to pay the difference out of pocket. Banks limit the loan amount since a property serves as collateral in the case that a buyer defaults on their mortgage. Preventing over-borrowing is the bank’s way of ensuring that they will be able to fully recoup any losses through the property’s resale.
When an appraiser is determining the appraisal value, they take a variety of factors into account. Firstly, they look at the home’s physical features: Number of rooms, updates, amenities, location, square footage, and more. Secondly, they analyze current market trends by looking at the sale prices of comparable homes in the area, as well as buyer demand. Finally, the appraiser will look for any flaws with the property. This could be termites, mold, water damage, or even the fact that someone once died there. All of these factors contribute to the appraisal value, in addition to being important considerations for the home’s sale price.
Appraisals are typically conducted during escrow after a sale price has already been negotiated. If the home is appraised at a value higher than the sale price, the buyers can rest assured that they got a great deal on the property while sellers will have the knowledge that their home could have sold for more. If the appraisal value is equal to the sale price, then nothing changes in the transaction. However, if the home is appraised at a value lower than the sale price, then buyers have three primary options:
An appraisal is an important step in the contractual process that allows both buyers and sellers to understand a home’s value given the current market. If a home is priced correctly, there shouldn’t be any setbacks in the appraisal stage of escrow.
When having a home appraised, you want to make sure you have a reputable appraiser that will provide the most accurate assessment. If the appraisal value stirs conflict in a transaction, you can always hire another appraiser for a second opinion.
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