Buying a home can be a complicated process with lots of paperwork and
terms you probably haven't heard before. One such term is "appraisal."
While not mandatory in cash real estate transactions (although you can
always get one), an appraisal is a necessity if you intend to buy a
property with a mortgage loan. The appraisal is a crucial step that
helps determine the fair market value of a property. If you're looking
to buy, read on for more information on this important process.
Why do I need an appraisal?
The goal of an appraisal is to determine the fair market value of a
property. It is conducted by a professional appraiser, who is typically
licensed or certified and has expertise in evaluating properties based
on various factors.
What is the appraisal process?
The process is comprised of a number of steps:
- A request is made for an appraisal as part of a mortgage application
- A property inspection occurs, where the appraiser will visit the
property to inspect multiple features (both interior and exterior)
- A comparable sales analysis is performed to compare the property to
recently sold properties (comps) in the same or a similar neighborhood
- The comparable sales analysis will help the appraiser identify if any adjustments will need to be made to the appraisal report
- A market analysis is performed to consider the current real estate
market conditions (supply and demand, trends in property values,
economic factors that could influence the property's value)
- The appraiser will compile all the pertinent information into a comprehensive appraisal report
- Based on all the above factors, the appraiser will arrive at a final
value for the property and this will be submitted to the lender for
review
The determined appraised value will play a significant role in the
real estate transaction and ultimately helps assure the lender that the
property provides sufficient collateral for the loan. The whole process
helps maintain transparency and fairness in the real estate transaction
by providing an objective assessment of the property's value.
Some common questions around the appraisal:
What is the cost?
Depending on where you are in the country, a home appraisal can cost
anywhere from $300 to $500, with fluctuations based on the type of
property (single-family or multi-family) and the size of the property.
Who pays for the appraisal?
Traditionally, the buyer is the party responsible for paying for the appraisal, but this can always be negotiated.
Is it required?
An appraisal is almost always required when purchasing with a
mortgage. Lenders will use the appraisal to determine whether the
property is worth the amount the buyer is asking to borrow.
What if the appraisal comes in lower than the sale price?
This can happen, and if it does, the buyer has some options: the
buyer can ask the seller to renegotiate the sale price to better align
with the appraisal value; the buyer can pay the difference between the
asking price and appraisal out of pocket; the buyer could use a
piggyback mortgage to make up the difference. (A piggyback mortgage is
an additional loan taken out on a property alongside a first mortgage).
Why did the appraisal come in lower than the sale price?
An appraisal can come in lower than the sale price - it happens.
There can be a number of reasons why the appraisal came in lower (this
list does not include every reason, but these are some of the most
common):
- The market is heating up fast and recently sold properties don't compare to current market conditions
- The appraiser didn't have enough data on sales of similar homes in the area and had to go out of the immediate area/neighborhood
- The majority of the property is below ground and requires the appraiser to use a much lower value per square foot
- The extra features of the property weren't enough to boost the total value of the property
- The appraiser didn't inspect the comps close enough and missed vital information
- The appraiser is new and hasn't built up a lot of experience
- The seller overpaid for the property and wants to recoup the money they spent
Buying a home is a process; the appraisal is an integral part of the
process and helps provide an unbiased and informed estimate of a
property's value, which is important for both the buyer and the lender
in the real estate transaction. While it may seem tedious, it is vital.
One thing that guarantees a smooth real estate transaction is having
an expert on your side - as your trusted real estate agent, I'll be
there with you through every step of the process.
Don't hesitate to contact me for all your Alabama Gulf Coast real estate needs!
Amanda Spears, REALTOR®
Bellator Real Estate & Development
