An appraisal is an important part of many real estate transactions. An appraisal is typically done if a buyer must get a mortgage loan to purchase a property. The appraisal is done by a licensed appraiser and it's based on a lot of different data gathered during an inspection by the appraiser. When it comes to appraisals, there are many myths or misconceptions around them. Whether you're looking to buy a home, refinance a current mortgage, or you're looking for more information about all that goes into real estate transactions, here are some of the most common myths when it comes to appraisals.
An Appraisal is the
same as a Home Inspection
While
both an appraisal and home inspection provide important information to all
parties, they are not the same thing. An appraisal is done to determine the
value of a property, generally for the benefit of a lender. The appraiser will
inspect a property for improvements and deficiencies but only to determine the
overall value of a property. However, a home inspection’s main purpose is to
look at the 'guts' of a property, assessing the overall condition, and
inspecting the major systems, appliances and structure to determine the shape
of a property. The appraisal is done to determine the value of a property; a
home inspection, which is not required, is done to determine the overall health
of a property.
The Appraiser is Hired by
the Buyer
An appraisal is
required when a home is being purchased with a mortgage loan; a current
homeowner is looking to refinance their existing mortgage; or when someone is
selling a home to someone that is not an all-cash buyer. The appraisal acts as
a security for the lender to understand the value of the property when making
the loan decision. Due to federal changes several years ago, the lender does
not hire a specific appraiser- they are chosen from a pool of appraisers. For
the majority of property transactions, the buyer is responsible for the cost of
the appraisal, and for the most part the buyer or borrower pays the costs
through the lender. Sometimes a seller
will get an appraisal to get an idea of
a home's value before listing the property - in this case, the seller would
hire the appraiser and pay for the appraisal.
The Appraisal Varies Whether it's For the Buyer or Seller
Typically, an appraiser has no vested interest in
the price of a property – They don’t represent any particular person. The
appraiser is to complete an independent and objective appraisal, simply
performing the service of determining a property's appraised value. Appraisals
can be done for a number of reasons: insurance, home loans, tax losses,
estates, liquidation and net worth. Because of this, depending upon the purpose
of the appraisal, the market value and appraised value can vary, but the appraiser
does not complete an appraisal in favor of the seller or the buyer.
Appraisers Use a
Formula to Determine the Value of a Property
The way in which appraisers determine the value of a
property is very detailed. An appraiser will analyze all aspects of a property:
location, condition, size, proximity to amenities and other facilities, and
they will also consider the recent sale prices of comparable properties in the
area. Other items that are considered in the appraisal: number of bedrooms and
bathrooms and the floor plan functionality. The appraiser does a visual and
physical inspection of the interior and exterior of the property. They will
take into consideration the type of flooring in a home; the materials used in
the kitchens, bathrooms, and other rooms; the siding and any other recent
upgrades. An appraiser will also consider things that need to be repaired, and
other miscellaneous items. Far from a specific formula, appraisers use a lot of
data to determine the appraised value of a property and an appraisal can take a
number of hours to complete depending on the size of a house and complexity of
the property.
I am a realtor working in South Florida. If you need help buying or selling a home, please contact me. Also, please view my website where you will also be able to search the MLS.
