The real estate market is always changing. The price you buy a property at today may change in a span of weeks or even days depending on various factors. As such, a home appraisal is needed when you’re getting a mortgage, refinancing an existing mortgage, or selling a home for cash. A home appraisal is an unbiased professional written value estimate of the current fair market of a property. Appraisals, also known as valuations, are carried out to ascertain the value of a property at a particular date.
All lenders require an appraisal to be done on the property during the mortgage process to assess the home’s value and ensure the amount requested is appropriate for that particular home at that point in time. Lenders must ensure homeowners are not asking for more than the home is worth because, in the event that the borrower defaults, the house has to be sold to recover the debt. If the home is worth less than the home loan, the bank won’t be able to recover their money.
Appraisals are also common during other real estate buying and selling transactions. Both the buyers and sellers want to get the best price they can on a given property. An appraisal helps the buyer know the current value of their property which could be a lot lower than they thought especially if it is an old home. This guides them in pricing so that they are able to attract buyers and still sell at a good price. On the other hand, buyers need appraisals to ensure they are not overpaying for a property.
How Appraisals Work - Appraisals are conducted by highly trained, licensed professionals whose job is to determine the fair market value of a given property fairly and objectively. The appraiser’s opinion of value should be based on numerous tests, rigorous training, and several years of experience doing the job. The appraiser has to go to the physical location of the property and carry out a thorough inspection of the property to determine the:
a. Location and neighborhood characteristics.
b. Size of the property.
c. The age and general condition of the property.
d. Unique features of the property e.g. Number of bedrooms, bathrooms, type of floor and walling materials, among others.
e. Structural improvements if any.
f. Architectural features like skylights, fireplaces, among others.
g. Any other key features that affect value e.g. swimming pools, backyard, fountains, among other features.
Appraisers use all their findings to calculate the market value of the house. They may use any of the following methods to calculate the value of the property:
How Much does an Appraisal Cost?
On average, an appraisal in the US costs around $300 but may vary based on the region, size and value of the property. In general, the buyer is responsible for paying for the appraisal. The appraisal fee is added to the house closing costs which must be paid at the closing.