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What Is a Home Appraisal, and What Are the Costs?

Home Appraisal Are Significant (And Required)

A house assessment helps guarantee that you do not overpay for a property by determining its true market worth. When purchasing a new house, most lending programs need an appraisal as protection for both the buyer and the mortgage lender.

Most borrowers spend between $300 and $425, which is included in their closing costs, for a house appraisal. However, if you satisfy specific criteria, you may not require one when refinancing an existing house.

By continuing to read, learn about appraisal prices, what to expect during the process, and why it’s vital to your home-buying journey.

What Is a House Appraisal?

A house appraisal is performed to assess the “real” worth of a property. Professional real estate appraisers examine a home’s condition and characteristics, then compare it to recently sold properties. The appraiser will determine how various factors, such as lot size, location, improvements, amenities, and square footage, affect the value of your house when compared to similar homes (called “comps”). In the end, appraisers determine the home’s fair market value.

Why Are House Appraisals Necessary?

Lenders typically demand an appraisal to ensure that the house is worth the purchase price and might be sold to offset losses in the event of a mortgage default. Because it would put them at risk of financial loss in the case of a foreclosure, mortgage lenders will not lend you more than the appraised worth of your house.

The lender will order an appraisal as part of the mortgage approval procedure but will not pay for it. Typically, the homebuyer is responsible for paying the appraisal charge. In certain regions, though, the vendor often pays for the meal.

Are House Inspections and Home Appraisals the Same Thing?

First-time homebuyers may confuse a house inspection with a home appraisal. Both occur before the purchase of a home and give the buyer the option to withdraw or renegotiate. However, they are fundamentally distinct.

A home inspection is a comprehensive examination of a property’s plumbing, foundation, HVAC, and other systems instead of a home valuation. Appraisals are meant to resolve any structural or functional issues with a home before the sale, allowing buyers to renegotiate the purchase price or ask the seller to make repairs. In addition, mortgage lenders usually need a home appraisal; however, they don’t require an inspection, even though it is highly recommended. 

How Much Does a Home Appraisal Cost?

According to data provided by HomeAdvisor, a normal assessment for a single-family house costs roughly $350, with average rates ranging between $313 and $421. However, costs vary by region. For instance, homebuyers in California may expect their home appraisals to cost between $600 and $800. In addition, variables such as the time of year and the size of the property might impact the cost of a home appraisal. An examination of a multifamily dwelling could cost $1,500.

You’ll typically pay between $300 to $450 for an appraisal. However, if you want a really extensive assessment of a huge house with significant valuation difficulties, you may easily end up costing four figures.

How Appraisals Benefit Purchasers

Numerous purchasers see assessments as bad. At best, they are just one of the many fees that comprise closing costs. At worst, a poor assessment might derail a contract, robbing an eager buyer of their ideal house.

Nevertheless, there is another way to view property appraisals. They prevent you from overpaying for a house. And why would you want to pay more than the home’s fair market value?

In addition, several homebuyers exploit a poor assessment to renegotiate the purchase price. This can result in savings that exceed the appraiser’s charge. Conversely, a higher assessed value might give purchasers more home equity and a good deal on the property.

What Factors Does an Appraiser Consider?

Numerous real estate appraisers use the Fannie Mae Uniform Residential Appraisal Report to evaluate a property’s condition. The following factors are considered by appraisers when comparing a home’s asking price to its actual value:

The appraiser will assess the general condition of the residence. They will determine the number of bedrooms and bathrooms, the functionality of the floor plan, the home’s amenities, and the square footage.

The appraiser will consider any home renovations or other improvements that may increase the value of your home. They will also evaluate exterior improvements, such as new landscaping, a pool, or a remodeled garage.

A licensed appraiser will also evaluate comparable properties, or “comps,” in the local housing market to determine home values. They’ll look at the sale price of other homes and their current property values to estimate the assessed worth of your new home.

Once the appraiser has completed their review, they will provide your mortgage lender with a final property valuation in an appraisal report.

What Does an Appraisal Report Contain?

Typical components of a house assessment report are:

  • Explanation of the valuation: Appraisers display their work so you may understand how they arrived at the property’s final value.
  • A concise summary of regional housing market trends: Are costs now increasing or decreasing? Moreover, how quickly?
  • Summary of the home’s attributes, including its condition, size, and any renovations that have been made.
  • Additional considerations: Is there anything else about the home or area that has impacted its value?
  • Structural difficulties and defects: Any faults the appraiser observed that impacted the property’s value.

It is essential to understand that house appraisers are not the same as home inspectors.

Please do not rely on their knowledge to identify systemic issues, as they will not always do so. In any case, it is not their responsibility to identify such problems.

Appraisers commonly utilize multiple methods to determine the value of a property. The most prevalent is the “comparables” method, which compares the subject property to other adjacent transactions to determine its worth. The “replacement cost” is required to build a new home on the same property. And the “rental schedule” determines the value by considering rental revenue.

What Sellers Disclose During the House Evaluation

The National Association of Realtors advises real estate brokers and sellers to create a bundle of documentation and make them available to appraisers before the inspection. The NAR recommended that the package should include as many of the following as possible:

  • Detailed maps of the nearby residential subdivisions.
  • Surveys
  • Deeds
  • Covenants
  • HOA paperwork
  • Floor plans
  • Specifications
  • Inspection studies
  • Localized information
  • Recent similar sales
  • Detailed list and dates of upgrades, house improvements, and associated expenditures, with possible invoices
  • Energy-efficient green features
  • Purchase contract

The greater the number of them a seller and real estate agent offers, the more precise the assessment may be.

Cash Purchasers Do Not Require a Home Appraisal

Not all real estate transactions require a house evaluation. Those who purchase a property with their funds are not required to have one.

Additionally, professional coders hardly bother. They believe they are as knowledgeable as any appraiser. And anyway, what’s the point of determining a home’s market worth if it’s going to be demolished and replaced? You should be aware of the market price for developing land.

Not All Refinance Situations Require an Appraisal

When purchasing a house, conventional mortgage lenders often request a property evaluation. However, they will only sometimes require one when refinancing. “If you have a 20% down payment, you do not always require an appraisal, even for some property purchases,” explains Jon Meyer, lending expert and qualified MLO.

It depends on your lender. However, as a general rule, appraisals are only sometimes necessary when the refinanced loan amount is $250,000 or less.

The FHA Streamline Refinance program enables homeowners with an FHA loan to refinance without a house appraisal. Similarly, borrowers with a VA loan are eligible for the Interest Rate Reduction Refinance Loan (IRRRL) without requiring an assessment.

With a “rate-and-term” refinance, lenders are least likely to request an appraisal for a traditional mortgage loan. This indicates that you pay your closing expenses out of pocket and increase your mortgage terms without raising the principal debt. If the expenses of refinancing are included in the new loan, this is known as a “limited cash-out” mortgage.

Lenders are most likely to seek an appraisal when your loan-to-value ratio (LTV) surpasses 80%, or you request a cash-out refinancing.

Dos and Don’ts on the Day of a House Appraisal

Sellers and agents are welcome to see the house appraisal. However, they should supply information and answer queries. It is forbidden to attempt to influence the evaluation decision in any manner.

The appraiser may not provide any sensitive information at this time. You may request to verify the appraiser’s credentials and ensure they have the necessary local expertise to arrive at a reasonable estimate. This is significant because some appraisers may leap at the chance to work, even if they are unfamiliar with the location.

Therefore, verifying that the office address is outside the next county is prudent. If you have reasonable concerns about the appraiser’s expertise or credentials, you can request that the lender send someone else.

Such occurrences are uncommon. Most appraisers endeavor to offer precisely what they’re paid for: an opinion on the home’s fair market worth.

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