The average person usually doesn’t understand how an appraisal pertains to their home value or what an appraisal really means for them as a buyer or a home owner trying to sell.
Over the years, we’ve come across clients who have been a bit misguided with respect to appraisals and how the whole process works. Some believed in order to get an appraisal done on there home they would need to enlist the help of REALTORS, while others thought there were set criteria that would “standardize” the appraisal.
We have also heard it said that no part of the process is subjective. Unfortunately, not only are ALL of these assumptions false, but these assumptions can actually lead to some serious disappointments.
This article focuses on what exactly is involved in an appraisal and why someone may want to order one.
An appraisal is ordered, for whatever reason, to establish fair market value of something. House, Car, or whatever. When selling your house, getting an appraisal can aid in helping you set the proper purchase price, and ensure you’re not asking more for your house than a bank would lend on.
An appraisal will also include:
- A list of possible problems that might detract from the property’s value, like location next to a landfill, railroad or a driveway that enters on a main street.
- Also with an appraisal you will find comps, or comparable properties, taken from a database of homes sold within a period of time and within a certain radius of your own.
- An appraisal might also include an estimate of how long a home might stay on the market before selling and take into account the local real estate market conditions and trends.
Job of an Appraiser
In order to perform appraisals a person must be licensed and must complete specialized coursework followed by an apprenticeship. If you are selling your house, the appraiser must be an unbiased third party with no vested interest in your property’s value. Remember that the job of an appraiser is to offer their professional opinion.
Purpose of an Appraisal – Home Value
An appraisal might be needed for a number of reasons…most commonly because a lender requires one before they will guarantee financing a certain $ amount for a buyer on a specific property. Basically, the lender needs to make sure that you’re paying a fair price for the home you are interesting in buying. Remember that when the bank lends you money they’re assuming a huge risk if something happens and you’re no longer able to make payments and are forced to default on your loan (Facing Foreclosure). An appraisal provides many important facts to the lender which help the lender determine whether or not they should loan you the money on this particular home.
Additional Reasons for an Appraisal
If a homeowner has recently made improvements, it might be necessary to have an appraisal done in order to raise the value that the home is insured for. For example, last year someone purchased an older home for below market value and spent a great deal of time, money, and work renovating the home. However, the home was still insured for the original purchase price until the homeowner had the home re-appraised for the new higher value post-renovation.
Appraisals might also be needed to reevaluate a home’s value following a divorce, estate settlements, tax issues, etc.
Cautions Regarding Appraisals
Do not confuse an appraisal with a Comparative Market Analysis or CMA. If you need a CMA, many REALTORS® do provide them for clients they have representation agreements with. CMA are used to provide a current market value based on market conditions and comparable properties.
While full of useful information, a CMA is not nearly as extensive as an appraisal. It is simply the REALTOR’S® opinion on what your property should be priced at. As such, a CMA cannot be used as a substitute for an appraisal, and unless a REALTOR® is licensed as an appraiser (which might be considered a conflict of interest), they cannot provide you with a legal appraisal.
Remember, too, that an appraisal is by no means absolute
If you asked 10 different appraisers to come to your home, you might end up with 10 different suggested values. In a larger city it’s easier to determine a consistent appraised value.
Appraisals are of vital importance to any real estate transaction and can make or break a deal. Since you now have a better understanding of an appraisal’s purpose and reasons for utilizing one, you should also be better equipped as a home owner. Now call that Appraiser!
Any questions about APEX Home Buyers or about how much your home may be worth, please contact us at 844-388-APEX(2739) TODAY!
We’re here to help.
– APEX Home Buyers