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We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Part Of. Know the Basics. Effects on Financial Status. When to Refinance. How to Refinance. Refinancing vs. Other Options. Home Ownership Mortgage. Table of Contents Expand. What Is a Home Appraisal? Appraisal vs. Refinance Appraisal. How Do Home Appraisals Work?
Who Pays for the Appraisal? What Is the Cost of a Home Appraisal? What Do Appraisers Look For? If You Secure a Good Appraisal. When the Appraisal Is Low. What Happens After the Appraisal? What Hurts a Home Appraisal? The Bottom Line. The appraiser is an independent professional who thoroughly evaluates the home and examines similar properties before arriving at a valuation for the home. To increase the odds of a high appraisal, freshen up a home's paint job, clear away clutter, and highlight hidden features.
For that reason, exceptions to these parameters are made very frequently. Some of the primary characteristics compared are the square footage, room count, lot size, garage size, backyard amenities, etc. Check out how Appraisers measure square footage. Comps are recently sold homes that are similar to the subject property. Bracketing means that two of the comps would be slightly smaller than the subject property, two slightly larger, and two about the same size as the subject property.
The report asks the appraiser to describe the interior and exterior of the property, the neighborhood, and nearby comparable sales. The appraiser then provides an analysis and conclusions about the property's value based on their observations. The report must include:. If the appraisal comes in at or above the contract price, the transaction proceeds as planned. If the appraisal comes in below the contract price, however, it can delay or derail the transaction.
Chances are, neither you nor the seller wants the transaction to fall through. As the buyer, you have an advantage, in that a low appraisal can serve as a negotiating tool to convince the seller to lower the price. The bank won't lend you or any other prospective buyer more than the home is worth. While appraisals help buyers avoid overpaying for homes, a seller may feel that a low appraisal is inaccurate and be reluctant to drop the price. If a bad appraisal is standing between you and your home purchase or sale, look into getting a second opinion via another appraisal by a different person.
Appraisers can make mistakes or have imperfect information. Better yet, present a factual case for a higher value to the original appraiser. They may agree with you and revise the evaluation. Federal guidelines intended to eliminate the inflated appraisal values that contributed to the housing crisis sometimes cause appraisals to come in below fair market value and can make low appraisals difficult to challenge. Holding out for an all-cash buyer who doesn't require an appraisal as a condition of completing the transaction is unlikely to net you a higher sales price.
No one wants to overpay for a home. Unfortunately, if your surrounding area has experienced recent distressed sales , that can lower your home's appraisal value. Getting an appraisal is also a required step when giving a home to a family member as a gift of equity.
If you're refinancing a conventional mortgage , a low appraisal can prevent you from doing so. The home needs to appraise at or above the amount you want to refinance for your loan to be approved. However, if your existing mortgage is an FHA mortgage , you can refinance without an appraisal through the FHA Streamline program—a great option for underwater homeowners.
When everything goes smoothly, the home appraisal is just another box to check on a closing checklist. When the appraisal value is lower than expected, the transaction can be delayed or even canceled.
Regardless of which situation you encounter in your home buying, selling, or refinancing experience, a basic understanding of how the appraisal process functions can only work in your favor, especially if you're buying your first home.
Appraisal Institute.
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