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Home appraisals involve an assessment of a home by a professional appraiser. The goal of a home appraisal is to determine the fair market value of a property. This can affect the amount you can borrow when you obtain a mortgage loan. Appraisals are part of the process both when you purchase a home and if you are refinancing your mortgage.
A home appraisal determines the objective fair market value of the property. Appraisals assess a home's square footage, location, features, and condition.
Appraisals can happen when an individual wants to purchase a home or refinance their mortgage. The appraisal value may show a home is worth more or less than listed by the seller. Or it could show it is worth more or less than you paid for it.
Note that appraisers are licensed, certified, and trained to assess the value of a property. They often, but not always, use a Uniform Residential Appraisal Report. This helps them evaluate the home and accurately determine its worth.
A home appraisal for a single-family home typically costs between $300 and $450. However, the cost can vary. Factors affecting the price include your location and the complexity of estimating the property value.
Typically, an appraisal will be ordered by a lender. The lender selects an appraiser, who visits the home to assess its value.
Owners can also request appraisals. They may do this to appeal their home's property tax valuation. Or they may want an appraisal to help determine how much their property might go for on the market.
The key features that appraisers consider when determining the property's value include:
Appraisers identify comparable properties that recently sold and that are similar in size and location. They then make adjustments to account for differences between the property they're appraising and the recently sold property.
For example, they may add $10,000 to a home's value for an extra bedroom. Or deduct $5,000 if it has one less fireplace. After making adjustments to the comparable properties, the appraisal will be able to estimate the appraised home's value.
The home appraisal process works as follows:
Our beginner's guide to home loans provides more details about why a home's valuation is important.
Appraisers only consider things that affect the fair market value of a home. They don't care about the furniture or how tidy the home is. They are concerned with:
In most cases, there is little you can do to prepare for a home appraisal as a buyer. However, sellers or people who are refinancing may have a few steps they can take to maximize their home's appraisal value.
As a home buyer, you don't have much control over an appraisal. Your role will simply be to pay the appraiser. Your lender will decide who should appraise the property you're considering buying.
Your goal as a buyer is for the home to appraise high enough so that you qualify for your home loan.Mortgage lenders and refinance lenders use the appraisal to determine your loan-to-value ratio.
If the property appraises too low, this could affect your loan-to-value ratio.
If you're borrowing $200,000 to buy a $250,000 home, the loan-to-value ratio would be 80% (because $200,000 is 80% of $250,000). But if the home appraises for only $200,000, your loan-to-value ratio would be 100% ($200,000 -- your loan amount-- is 100% of $200,000, which is the home's value).
If you end up borrowing more than 80% of the appraised value, you'd likely have to pay for mortgage insurance. So if the home appraises too close to the amount you need to borrow, you might ask the seller to drop the price. Or you could put down more money, so you borrow less.
Use a mortgage calculator to understand how mortgage insurance premiums affect total costs.
If you're selling or refinancing your mortgage, make sure your home is in good condition before an appraisal.
Cleaning up and decluttering can make it easier for an appraiser but won't ultimately impact your property's value. However, making necessary repairs can affect your home's value, as your appraiser does take the condition of the home into account.
Here are some other questions we've answered:
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A home appraisal is an assessment of a property's fair market value performed by a licensed professional. Appraisers find comparable properties which have recently sold. They make adjustments to the price based on how the home's features differ. They use this information to estimate what a home is worth on the open market.
A home appraisal typically costs between $300 and $450.
Lenders or owners order an appraisal from a licensed appraiser. The appraiser visits the home and obtains information about the property and the neighborhood.
The appraiser identifies similar properties in the local area, and makes adjustments based on how they differ from the home being appraised. If the home being appraised is larger or has more attractive features, the estimated price is raised. If the property has less attractive features, is smaller, or is in worse condition, the value is lowered.
After making adjustments to the price of comparable properties based on the varying features of the home being assessed, the appraiser can estimate the property's fair market value.
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