The home appraisal report is a lender’s primary tool. While banks always send out their own appraiser before lending on a property, private appraisers can be hired by soon-to-be buyers to get a load of intel on prospective home purchases.
Getting a home appraisal is required by lenders before they will loan on a property, but are not required for cash buyers. The appraisal process and findings from home value reports help both the bank and borrower ensure they pay no more than a property is worth.
What is a Home Appraisal?
A home appraisal is an unbiased valuation of a home. They are used whenever there is a mortgage involved in the transaction you are refinancing or selling a home.
The type of appraisal you get is dependent on the mortgage loan type. FHA or VA loan for example would require different appraisals in almost every case.
Do I Need It?
Borrowers are not always required to get an appraisal, but it comes down to the individual lender and the subject property. Most lenders will require one but there are situations where they can be waived.
The purpose of the appraisal is to protect the interest of the lender, the lender usually orders the appraisal. The borrower typically pays the fee for the appraisal and this is usually a few hundred dollars. The appraisal must be done by a qualified or licensed appraiser who is familiar with the local market. they also must have no direct or indirect interest in the property.
How Do Appraisers Determine Home Value?
Appraisers use several methods to determine home value. There is the sales comparison method which compares one property to comparables or other recently sold properties in the area with similar characteristics.
The income approach allows investors to estimate the value of a property based on the income the property generates.
Appraisers can also determine home value with the replacement cost approach. This approach calculates the total cost to construct or replace the home at a given time. The replacement home is an entire building of equal quality and utility. Estimated prices for labor, materials, overhead, profit, and fees in effect, are included in the total price at the time of the appraisal.
In NC we have CMA’s Comparative Market Analysis (CMAs) and Brokers Price Opinion (BPOs). These are interchangeable terms and give an estimated price range for the given property, while the appraisal is an opinion of value. Fill out our CMA form to get a report from our team sent right to your inbox.
What’s Included in an Appraisal Report?
Once appraisers determine home value, they deliver an appraisal report. The finds are a summary of the appraiser’s inspection of the property. The report also specifics the amount banks should be willing to loan for someone to purchase the property.
An appraisal report must include the following:
- A street map showing the appraised property and comparable sales used
- An exterior building sketch
- An explanation of how the square footage was calculated
- Photographs of the home’s front, back, and street scene
- Front exterior photographs of each comparable property used
Other pertinent information—such as market sales data, public land records, and public tax records are included in appraisal reports. Specific data from public information can be used to determine the property’s value.
Is an Appraisal the Same as an Inspection?
It is extremely important to note that an appraisal is not the same as an inspection. Inspections focus on the property or a single aspect of that property, while appraisals account for the property’s condition, location, lot characteristics, and overall real estate market in the area.
What if my Appraisal Comes in too Low?
If your appraisal comes in below the purchase price the lender will typically decrease the amount they lend, this can slow or stop the transactions completely in some cases. Appraisal contingencies can be implemented, so the seller meets certain conditions before the buyer makes a purchase or takes out a loan on the property.
If you are unsatisfied with the appraisal and how it came out you can appeal it but the process is more expensive and can take time. There is the possibility of the seller coming down in price to help complete the transaction but this can be a deal-breaker in certain situations.
Navigating appraisals with a real estate professional is always the best bet. Reach out to the agents at 828 Real Estate for our local appraiser recommendations in the High Country of North Carolina.
