Getting an appraisal is an essential part of any home purchase or sale, so much so that it can make or break the transaction. So what is an appraisal exactly? Below, we’ll cover everything you need to know: what it is, how it works, and why getting a satisfactory one is so crucial. By the end of this guide, you’ll be able to go into your appraisal feeling prepared for what’s to come.
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What is an appraisal?
Officially, an appraisal is an unbiased estimate of a property’s fair market value by a third-party professional. Fortunately, this process is not nearly as complicated as the definition may make it sound. At its core, an appraisal is simply a chance for someone who’s not personally involved in the sale to give their opinion on what the home is worth.
How appraisals work
The home appraisal process begins with an appraiser – that professionally-trained third party – making a site visit to the property. He or she will then assess the home’s interior and exterior based on a variety of factors, like its condition, location, and features.
In addition to the site visit, the appraiser will also take into account the prices of comparable sales in the area before deciding on a valuation. They’ll look at the different features of similar properties, such as square footage and the number of bedrooms and bathrooms, to get a feel for how the home stacks up to the neighborhood.
When the appraiser has finished their assessment, they’ll release an appraisal report, which contains the official valuation of the property. It gets sent to several people involved in the transaction, including the buyer, their real estate agent, the lender, and in some cases, the seller and their agent.
Why the appraisal is important
Getting an unbiased opinion on the price of a home is vital for a couple of reasons. First, it keeps home values from artificially inflating. Second, it ensures that the buyer isn’t paying more for the home than it’s worth. Though these reasons may sound a bit discouraging for sellers, keep in mind that the appraisal is necessary to verify that the buyer is actually able to purchase the property.
In particular, it’s crucial to get an appraisal that matches (or exceeds) the sale price. That’s because most lenders will only issue a mortgage loan that’s worth the appraised value or less. If the valuation comes back much lower than the sale price, the buyer may have trouble securing a mortgage that’s large enough to buy the house.
However, if that happens, know that all hope is not lost. For buyers, their real estate agent could ask the appraisal management company to review their decision. The agent may also submit additional comparable homes or other evidence of market trends to help justify the purchase price. Buyers can also be proactive about this potential outcome by adding an appraisal contingency to their initial offer, which allows them to walk away from the sale with no penalty in the case of a low appraisal.
Sellers also have some options in this scenario. They can either renegotiate the sale amount, ask the buyer to find additional financing, or put the home back on the market and wait for another buyer who doesn’t need as big of a loan.
The process of buying or selling your home can be full of potential roadblocks. If you’re looking to streamline your own home sale or purchase, consider working with Orchard. For those buying a new home and selling their current one at the same time, we’ll help you make a competitive, non-contingent offer to buy your next home. Then, we’ll help you sell your current home for top dollar in 90 days or less. Our service also eliminates the stress of lining up your buying and selling timelines so you can focus on finding your dream home.
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