So, you've made a decision to buy a house. You've been to the bank, and they've said, "Okay. $250,000 it is." A new home is almost within your reach. Now, you've just got to get that thing appraised.
What is a home appraisal?
The seller might be asking for $250,000, but your lender is going to want to know what the place is really worth. After all, the home is your collateral for the loan, and it belongs to the lender if you default. That's why they'll usually require you to have it appraised by someone they are familiar with. The plus side for you is that, if the appraiser's expert opinion deems the house worth less than the asking price, the seller may reduce it. You, the buyer, are responsible for the cost of the appraisal. It will probably be included with the closing costs portion of your
mortgage.
An appraisal is different from an inspection. For instance, an appraiser will not check the chimney, central air system, or utilities in the house. Those kinds of things are an inspector's job. The appraiser is only there on behalf of you and the lender to see what the place is worth monetarily. This might be done by comparing the house and property to other, similar listings, or estimating the amount of money it would take to reproduce the house from scratch. The latter is usually done for newer homes.
What are they looking for?
The appraisal amount can be affected by:
- The housing market in the area
- The type of area the home is in (e.g., a development or a city)
- Any structural flaws (e.g., a crack in the foundation)
- A wet basement
- Any other permanent structures on the property
An appraiser's report is very detailed, and takes all sorts of market trends into account, including the estimated time to
sell the property as compared to that of the area. Another thing he or she might look for is access to the house; if a private road leads to the house and it's damaged, it may take the signatures of other people on the street, pledging to fix it, to keep the property value up.
TIP: Don't worry about whether the lawn is mowed or not or if there are dirty dishes in the sink. Appraisers are trained to look beyond these things to see the actual worth of the home.
Low appraisals
Even if you have been pre-approved for a loan amount, your lender may refuse to lend if the appraisal is too low; if the ratio of value-to-loan is too far off, they aren't getting a good deal. As a solution, the seller may lower his or her asking price or fix some things to bring the house's appraised value closer to it. You can also ask for a second appraisal, as long as your lender approves of the party performing it. If you are dead-set on getting this house at this time and the seller and lender won't negotiate, you can make up the difference yourself. You'll be paying more than the house is worth, but that's your prerogative.
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