Appraisal Fun For Everyone
(Appraisals are a very important part of the home buying process, especially during this uncertain time in the housing market. )
Before a loan is approved for your home purchase or refinance, you have to get the value of your home appraised. The appraisal is a lot more than many people think and can actually make or break whether the deal goes through or not. An article posted on about.com by Janet Wickell, "Facts about residential real estate appraisals," gives some pertinent information on the appraisal process.
"A real estate appraisal helps to establish a property's market value-the likely sales price it would bring if offered in an open and competitive real estate market. Your lender will require an appraisal when you ask to use a home or other real estate as security for a loan, because it wants to make sure that the property will sell for at least the amount of money it is lending."
When getting an appraisal, it is important not to confuse it with a comparative market analysis, or CMA, which is very common for first-time buyers or refinancers to do. A CMA is used to determine a realistic asking price when selling a home.
Also, an appraisal is not a home inspection and you should always have a separate inspection completed because an appraiser does not decide if the home is in good condition or not, just the value.
An appraiser's report is one of the most important documents in the home buying and refinancing processes, because it is what a bank uses when deciding if it is going to lend money to a potential borrower.
For an appraisal to take place, you must hire a licensed appraiser for your state. Always make sure your appraiser comes from a legitimate company and ask for referrals if necessary.
"The appraiser should be an objective third party, someone who has no financial or other connection to any person involved in the transaction. The property being appraised is called the subject property."
Looking at the appraisal report can be a very confusing thing since it is a very detailed document. It is important to understand what is contained in this document well in advance of the appraisal date.
"Details about the subject property, along with side-by-side comparisons of three similar properties, an evaluation of the overall real estate market in the area and statements about issues the appraiser feels are harmful to the property's value, such as poor access to the property."
There are normally two types of methods for an appraisal, one being the sales comparison report and the other being the cost approach. The sales comparison approach compares your property to other similar ones in the area to get an estimate of the value. The cost approach is mostly used for newly-built homes and estimates the amount it would cost to rebuild the home if it were destroyed.
If the unthinkable happens, and your home is appraised for less than expected, there is a chance that the sale or loan will still go through.
"Don't panic if the appraisal comes in low, because there are often steps you can take to make the deal work. If the appraisal uncovers other problems, remember that most problems are correctable. Try to keep your cool and work through issues one step at a time."