Are you looking for some quick important facts about appraisals?
Here is exactly what homeowners and realtors need to know about appraisals in a nutshell.
The appraisal process can be complicated, and if you’re anything like me, you don’t have time for an all day seminar but you do want to be aware of what is important.
So, before you sell the house, I will help you be prepared for what to expect.
You are going to learn the 7 most important facts about appraisals that will help make selling your house less stressful.
After you read this post you are going to be a pro and ready for the appraiser.
This post is all about quick important facts about appraisals every homeowner and realtor needs to know.
The 7 Facts About Appraisals
The appraisal process is an important step in any real estate transaction.
It is the process by which a professional appraiser determines the market value of a property.
The appraisal is used by lenders to determine the amount of money they are willing to lend on the property.
And then, many buyers and sellers will use the appraisal to negotiate a sale price.
#1. What is an appraisal?
An appraisal is a professional opinion of the market value of a property.
In a nutshell – The market value is the price at which a property would sell if it were offered for sale on the open market under normal conditions.
Go here to see Fannie Mae’s definition of market value.
#2. Why is an appraisal important?
When it comes to selling a house the real estate appraisal is important for 2 reasons.
First, it is used by lenders to determine the amount of money they are willing to lend on the property because if the borrower defaults on the loan the lender wants to be sure they can sell the house without a loss.
This is why most lenders will not lend more money than the appraised value of the property.
Second, although the appraisal is completed for lending purposes, it is often used as a negotiation tool by many savvy realtors.
If the appraised value is lower than the sale price, the seller may need to reduce the price, or the buyer may need to bring their own money to the settlement table.
#3. What are the different types of appraisals?
There are three approaches to value. The appraiser must consider using all three but they can decide it makes the most sense to use only one or two approaches to value.
- Sales comparison approach: This type of appraisal compares the subject property to similar properties that have recently sold in the neighborhood. This is the most common approach used for selling a house. Most lenders will require this type of appraisal report.
- Cost approach: This approach estimates the cost of replacing the subject property. It is typically used when appraising new construction homes.
- Income approach: This approach estimates the income that the subject property could generate. This appraisal makes the most sense when the subject is being purchased as an investment property.
#4. How is an appraisal conducted?
The appraiser will inspect the property and collect information about the property and the neighborhood.
Then, the appraiser will review and analyze recent sales of similar properties, and the real estate market conditions.
Once the appraiser has collected all of the necessary information, they will prepare a written report that includes their opinion of the market value of the property.
#5. What factors affect the appraised value of a property?
The appraised value of a property is affected by many factors, including:
- The size of the property: This includes the lot size and the size of the house.
- The location of the property: Appraisers are checking for busy roads vs quieter streets, the school district or township house price stats, and other factors that contribute to location.
- The age of the property: Is the property new construction? Is it a historical property? The age plays a significant role in value.
- The condition and quality of the property: Has the property been well maintained, or recently renovated? And, what types of materials were used?
- The amenities of the property: Properties with extra amenities, such as a swimming pool or a garage, may see a positive impact on market value.
- The zoning of the property: Properties that are zoned for commercial use may be worth more than properties that are zoned for residential use. (You’ll need a General Appraiser for a commercial property)
- The interest rates in the market: When interest rates are low, home buyers are more likely to borrow more money to buy a home. This can drive up the prices of homes.
#6. How can homeowners prepare for an appraisal?
Homeowners can prepare for an appraisal by making sure the appraiser has full access to the entire property.
Always provide the appraiser with the information you used when determining a sale price. This includes a list of recent improvements, and any recent sales that you feel are relevant.
Also, be prepared to answer questions about the property.
#7. What should homeowners do if they are not happy with the appraised value of their property?
If homeowners are not happy with the appraised value of their property, they can appeal the appraisal.
This process is called an ROV (Reconsideration of Value).
To appeal the appraisal, homeowners or realtor will need to provide additional information to the lender which will be sent to the appraiser.
The appraiser will then review the additional information and may (or may not) revise their opinion of the market value of the property. Either way, the appraisal will provide a response.
I hope these 7 facts about appraisals were helpful.
The appraisal process is an important step in any real estate transaction.
Homeowners and realtors should understand the appraisal process and be prepared for an appraisal.
There shouldn’t be any secrets. I am always happy to help you find the answers you need about the appraisal process.
