An appraisal is an unbiased professional opinion of a home’s value. It is very common to have them in any home purchase and is used to determine whether the home’s price is appropriate or not. It’s like a way to make sure that the lender is giving the property for a fair amount. It also protects the banks in worst-case scenarios.
Lenders want to make sure that homeowners are not overborrowing for a property because the home serves as collateral for the mortgage. If the borrower should default on the mortgage and go into foreclosure, the lender will recoup the money it lent by selling the home. The appraisal helps the bank protect itself against lending more than it might be able to recover in this worst-case scenario.
Note: If you’re considering a refinance, it is beneficial to research interest rates using a mortgage calculator.
The lender will be the main figure that gets protected under an appraisal, and will as well order the appraisal.
A property’s appraisal value is influenced by recent sales of similar properties and by current market trends. The appraiser will do a complete visual inspection of the interior and exterior and note any conditions that may affect the property’s value, such as needed repairs.
The report must include a street map showing the appraised property and comparable sales used; an exterior building sketch; an explanation of how the square footage was calculated; photographs of the home’s front, back and street scene; front exterior photographs of each comparable property used; and any other information, such as market sales data, public land records and public tax records, that the appraiser uses to determine the property’s value. Usually the borrower will have to take care of the appraisal costs.
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..
When the appraisal value is lower than expected, the transaction can be delayed or even canceled. Understanding how an appraisal works will always work in your favour.
So that’s all for today, hope you found this article useful so far and don’t hesitate in reaching me out if you have any questions or need a consultation.