What Is A Home Appraisal In Real Estate?
You're ready to buy a home. You've finally found one that fits all of your needs, and you're ready to place an offer. You may be willing to pay a significant amount of money to get the property, especially if it's your dream home. Before anything can go forward with obtaining a loan on the house, however, your lender has to agree to the terms. The lender wants to be sure that its investment in the property is a good one, one that can be backed up by the forced sale of the house if you default on it, according to The Ascent.
To do this, lenders will request a home appraisal. The national average cost for an appraisal is $375 to $450, as noted by Fixr. Considering this cost, which you may have to pay out-of-pocket, you may be wondering what this process is and why it matters. Here's what you need to know about the home appraisal that could be holding up your purchase.
What does the appraisal do?
The home appraisal in real estate is a necessary step in obtaining a mortgage loan. The appraisal is an estimated value. It's considered an unbiased professional determination of the value of the house at any given time, as stated by UpHomes. An appraisal is performed by a licensed and highly trained professional who visits the property and inspects it. This process helps the lender know that the price you're buying the house for is an accurate reflection of the actual value. This way, the lender knows that the borrower isn't spending too much to purchase the home — more than it is worth.
For example, if a home is listed at $200,000 and there's a fierce bidding war, the home's price may have risen to $250,000. The lender wants to be sure that the house is really worth $250,000 and conducts an appraisal to ensure it is. If the appraisal states the house is only worth $230,000, the lender may not be willing to move forward.
What will a home appraiser look at?
During a home appraisal, the appraiser will perform a significant inspection of the property. This is a third-party professional who has no interest in the property itself. Their job is often to look at the overall living condition of the property to ensure there are no noted safety hazards present, determine if the home's major systems are functioning, and find out if the house matches the property's sale description, according to Realtor.com.
In addition, the process will also likely include an analysis of the homes in the area that have sold recently to get an idea of what the market is paying at the current time; these are called "comps" (via Rocket Mortgage). Appraisers need to determine the value of a house based on multiple factors, such as size and features, location, and age. They may also take into consideration home repairs and improvements. With this information, the lender may feel confident to provide the mortgage and move into the closing process.