If you’re financing your home purchase, getting a home appraisal is usually a required step before closing. While it’s a standard part of the process, understanding what an appraisal is and why it matters can help you navigate this step with confidence. Here’s what you need to know:
What is a Home Appraisal?
A home appraisal is an unbiased, professional assessment of a home’s market value. It helps lenders ensure that the purchase price aligns with the property’s true worth. Licensed or certified appraisers, who are independent third parties, conduct the process. Their job is to offer an objective opinion on the home’s value, not to represent the buyer or seller. When an appraiser is also a REALTOR®, they are committed to the REALTOR® Code of Ethics, ensuring the highest standard of professionalism.
Do I Have to Get an Appraisal?
If you’re taking out a mortgage, your lender will generally require an appraisal. This helps determine your loan-to-value (LTV) ratio—the percentage of the home’s price you’ll borrow. Lenders typically prefer an LTV of 80% or less, as higher LTVs carry more risk. If you’re paying cash, an appraisal isn’t necessary, but it’s still a good idea to ensure you’re paying a fair price. In some cases, the lender or buyer may waive the appraisal requirement to make an offer more appealing to a seller.
What Does an Appraiser Look For?
Appraisers compare your property to comparable homes (comps) that have recently sold in the area. They look at factors like the home’s condition, location, size, amenities, and any recent renovations. By examining these characteristics, they arrive at a fair market value. Regardless of the approach, appraisers must be impartial and base their decisions on solid evidence.
Do Appraisals Require a Property Visit?
While many appraisals involve an in-person visit, some may be done remotely. These are known as hybrid or desktop appraisals. In these cases, appraisers collect data online and consult third-party sources, such as real estate agents familiar with the area.
Can My Agent Communicate with the Appraiser?
Yes, your agent can provide information to the appraiser. However, it’s important to note that agents cannot influence the appraisal outcome. Intimidating or pressuring an appraiser is illegal and unethical. The appraiser must remain impartial and confidential.
What Happens if the Appraisal is Lower Than the Purchase Price?
If the appraisal comes in lower than the agreed-upon purchase price, it can affect how much your lender is willing to finance. You can ask the seller to lower the price, or negotiate with your lender for a better deal. It’s also a good idea to include an appraisal contingency in your purchase agreement, ensuring the deal can be renegotiated if the appraisal doesn’t match the price. However, appraisal contingencies are optional.
Will I Get a Copy of the Appraisal?
Yes, the Federal Equal Credit Opportunity Act requires lenders to provide you with a free copy of the appraisal after it’s completed. If your lender grants you an appraisal waiver, they are not obligated to send you the report.
Can I Request a Reconsideration of Value?
If you think the appraiser missed something important or used incorrect comparables, you can request a Reconsideration of Value (ROV). Your lender will provide guidance on how to initiate this process, and your agent can help gather the necessary information. If you believe the appraisal was biased or inaccurate, you also have the option to file a complaint with the appropriate regulatory agencies.
Final Thoughts
Understanding the home appraisal process is essential when purchasing a home. Whether you’re securing a mortgage or paying cash, appraisals ensure that you’re making a sound investment. Keep in mind that practices may vary depending on your state, so consult with your real estate professional for guidance specific to your area.
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