Understanding Appraisals and Their Impact on Your Home Purchase

A person's hand filling out a real estate appraisal document.

One of the most essential steps when buying a house or refinancing your existing home is the appraisal. Appraisals can make or break a real estate transaction. Appraisers have significant power in the role they perform for a mortgage lender. Given their importance, they must be accurate with their valuation.

The following information will help you understand what an appraiser does and what they look at.

What are the key factors that an appraiser looks for in a property?

When appraising a property, appraisers carefully consider the following factors:

  • The property’s location, considering its proximity to amenities such as schools, parks, and shopping centers.
  • The size and layout of the property, including the number of bedrooms and bathrooms, as well as the overall square footage. An appraiser’s dimensions are more accurate than those found in the listing information. If there are discrepancies, trust the appraisal report.
  • The property’s condition, looking for any signs of wear and tear or necessary repairs.
  • Any recent renovations or upgrades that may have been done to enhance the property’s value.
  • Use comparable sales to determine market value and ensure an accurate appraisal.

What is an appraiser, and who hires them?

  • An appraiser is a highly skilled professional specializing in determining the value of real estate. These experts undergo rigorous training and certification processes to ensure their competence in assessing the home’s worth.
  • Appraisers employ industry knowledge, research, and analytical techniques to evaluate market trends, conditions, and demand.
  • Their expertise can also be used for valuations for insurance purposes, estate planning, taxation, lending decisions, and legal disputes.
  • Residential lenders most often hire appraisers to verify that the home is worth what the buyer is borrowing. This is the lender’s investment, and they want to ensure that the value is sound.
  • The lender typically orders an appraisal once the purchase agreement is fully signed and accepted. They may choose to wait until after any inspection contingency has been removed, in case issues are found and the buyer chooses to cancel. This way, the buyer won’t have to pay for the appraisal if they are not moving forward.

How does an appraiser assess the condition of a property?

  • When assessing a property’s condition, an appraiser considers several vital factors. They thoroughly inspect the property’s interior and exterior, looking for visible wear and tear, damage, or structural issues.
  • They pay close attention to the property’s overall maintenance and cleanliness, including the functionality of its systems, such as plumbing, electrical, and HVAC.
  • Additionally, an appraiser evaluates the quality of construction materials used in the property’s construction and considers any recent renovations or upgrades that may have been made.
  • They also take note of any potential safety hazards or code violations that could affect the value or desirability of the property.

What role does location play in a property appraisal?

  • Location plays a crucial role in property appraisal, as it directly impacts the value and desirability of a property.
  • Appraisers consider various factors related to the location, such as proximity to amenities, schools, transportation, and employment opportunities.
  • Additionally, they assess the neighborhood’s overall condition, crime rates, and future development plans. The location’s market demand and historical sales data are also analyzed to determine how the property compares to others in the area.
  • A prime location with favorable attributes will contribute significantly to a higher appraisal value, while a less desirable location may result in a lower valuation.

What aspects of a property’s layout and design are important?

  • When evaluating a property’s layout and design, appraisers consider several essential aspects. First, they assess the overall functionality of the layout, looking for efficient use of space and logical flow between rooms.
  • Additionally, appraisers pay close attention to the quality of craftsmanship and materials used in the construction and any unique architectural features that add value or enhance the property’s aesthetic appeal.
  • Furthermore, appraisers consider the property’s compliance with local building codes and regulations, ensuring it meets safety standards.

How does an appraiser analyze comparable sales in the area?

  • When analyzing comparable sales in the area, an appraiser employs a comprehensive approach. They gather data on recent sales of similar properties within a specific radius to ensure accurate comparisons.
  • Then, they carefully evaluate each property’s location, size, condition, amenities, and features to determine their similarities and differences.
  • Next, the appraiser considers any adjustments needed to align the comparable properties with the appraised subject property. These adjustments may account for variations in square footage, upgrades or renovations, views, or other unique characteristics.

By thoroughly examining these comparable sales and making necessary adjustments, the appraiser can provide an objective and reliable valuation of the subject property. What an appraiser does is similar to a real estate agent, providing a comparable market analysis, but far more detailed. Appraisers play a significant role in most real estate transactions. An appraisal will likely be conducted unless a buyer has a significant down payment or is paying cash.

What happens if the appraised value comes in lower than the purchase price?

It doesn’t happen often. However, when it does, these are the options available:

  • The seller agrees to lower the purchase price to the appraised value
  • The buyer and seller agree to split the difference between the appraised value and the contract price.
  • The buyer pays the difference out of pocket. (Not recommended)
  • The buyer may cancel the purchase agreement if the seller is not willing to change the offer amount. The purchase agreement should contain a contingency that protects the buyer in this situation, guaranteeing they will receive a refund of their earnest money.

As you can see, the appraisal is a very vital part of the loan process.  If you have any other questions about appraisals or anything real estate related, feel free to reach out.

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Kathy Doucette Real Estate
[email protected]