In real estate, an appraisal is the estimated value of a home. Determining the appraisal is a necessary step in financing a home. Most commonly, it is done after a home has been inspected and before a loan is provided. To receive a mortgage, lenders need an appraisal. The appraisal is a lender’s security. If the homebuyer is not able to finance their home and forecloses, the lender will sell the home to cover the loan’s expense. Therefore, a lender will not provide a loan that cannot be fully covered by selling the home.
The first step in the appraisal process is finding a real estate appraiser. There is a fee for an expert, approximately $300 to $450. For first lien and certain higher-priced mortgage loan applications, mortgage lenders are required to provide you with a free copy of all appraisals and other written valuations that provide an estimate of the value of your home. This helps the homebuyer understand what information influences the lender’s decision in how much money to lend.
The information a lender uses is similar to what a realtor uses in a market analysis. The lenders and realtors study the house’s overall size, the number of rooms, most often the bedrooms and bathrooms, the location, the improvements it has had, and how old it is. With this information, the appraiser will compare your home to another home with similar features to determine the home’s value.
When the homebuyer receives the lender’s appraiser report, he or she should visit a realtor to ensure that the report is accurate. What homes the appraiser compares your home to is critical to determining the value. Therefore, you want to be sure that the appraiser selected the right comparison homes. A realtor will be able to ensure that the appraiser included the right information about the home.
The appraisal will either be higher or lower than the price you will be purchasing the home at. The best situation is for the appraisal to come out higher. This provides the homebuyer with more equity. However, if the appraisal is lower, there are several options to consider.
Depending on the contract between the homebuyer and the realtor, the homebuyer could potentially pull out from purchasing the home. This saves the homebuyer from purchasing a home for more than it is worth. But if the homebuyer wants to continue with the home, he or she should either: fight the appraisal with the help of a realtor, hire another appraiser (this may or may not yield new results), pay the difference between the value and the selling price, have the seller pay the difference, or negotiate the contract.