What to Expect With Your Home Appraisal
Because it determines what the house is worth and if you can proceed with the home loan, it tends to cause a significant amount of worry to my clients. Regardless there always questions associated with your appraisal and please read on in an effort to clarify some of them:
What Is a Home Appraisal?
A home appraisal is a 3rd party unbiased opinion of value on a property you are buying. It’s a required stipulation when getting a residential home loan so the lender can assess the value of the home they are lending against. Keep in mind it is truly an opinion of value. You could order two appraisals on the same day, on the same home; and get two different values. The lender has a department within their company that evaluates the appraisal for accuracy, ensuring the independent appraiser has followed all necessary guidelines and provided the most accurate value possible.
Here is a short video explaining what the appraiser does
What Goes Into An Appraisal?
A 3rd party, independent expert called an APPRAISER will schedule a time to view the property. They will spend anywhere from 1 -3 hours at the residency to look over things like square footage, condition, neighborhood and age of the home. The appraiser will make notes, take measurements to use later in their report. Once their time on your property is done, they will take their notes and complete a 1004 URLA that looks like this:
The most important factors that determine your value are
1) Age of property
2) Comparable sale in the last 6-12 months
3) Square footage of your property
4) Location
5) Overall condition of the property
6) Improvements / Features
With this information the appraiser can assess an accurate value based on comparable properties that have sold in the area recently. Basically establishing a trend of value the lender can safely assume is accurate.
What Factors Affect My Value The Most?
Home Improvements
The value of a home does not stop at its original construction. The appraiser will be very interested at any improvements you have made and the quality of those improvements.
A new floor, a renovated bathroom or kitchen, new appliances, or an HVAC system – all of these are considered by the appraiser to determine overall value.
Buyers and lenders love newer appliances and quality renovations because they contribute to the lasting value of the property. A new dishwasher and kitchen renovation may add another 20 years to the life of a kitchen, something that is good for everyone involved. Home improvements will certainly be a factor in how an appraiser determines the value of a home!
Special Features
The extra things that make your home special will also be appraised. A home may be very basic or it may have a number of additions that make it more appealing.
Air conditioning in a cooler climate, for instance, may be unusual for the area but fantastic for the homeowner during the few hot months of summer. A swimming pool is another example.
If the pool is in good shape and in an area where people are willing to pay for them, it could add to the value of your home.
Even things you might consider basic like insulated windows, fireplaces, a garage or a security system can all add value to your home during the appraisal process.
These are all critical elements for what appraisers look for during the home appraisal process.
What Happens If Your Appraisal Comes In Low?
This is likely one of the most common questions I encounter when working with my clients. This can be a simple answer or it can turn complicated. There are truly 4 outcomes when you encounter a low appraisal:
1) Bring In More Money
The lender will use the lower of the following: Appraised Value or Sales Price when determining what they consider the houses value will be. This means if the appraisal comes in low, the value used will be the appraised value. If the appraisal comes in higher than the sales price, they will use the sales price of the home as the true value. Unfair right? So if your appraisal comes in lower than the sales price you have the option of bringing in the difference out of pocket.
2) Negotiate With The Seller
Your lender and Real estate agent will tell the seller that the appraised value came in low. The seller may ask to see the appraisal and this is up to you as the buyer to provide it. Technically you paid for it and the appraisal is your confidential financial information, although a low appraisal can make a good bargaining chip.
Your real estate agents will discuss the value and any flexibility in the sales price to accommodate the low appraisal, at this time the seller will agree or disagree to reduce the sales price to meet the appraised value.
3) Meeting in The Middle
If the seller is not willing to lower the sales price to meet the appraisal, you can “meet in the middle”. This is a combination of lowered sales price and bringing more money in.
4) Walk Away
Often the most difficult option for some people, but walking away is an option you are entitled to. Your realtor likely put an “appraisal contingency” into the real estate contract that states you have the right to walk away upon the event of a low appraisal. So you have every right to walk away and likely get your earnest money back.
Different Types Of Appraisals:
Below is a quick guide to the different types of appraisals available
Form | Purpose |
---|---|
Uniform Residential Appraisal Report (Form 1004) | For appraisals of one-unit properties and units in PUDs (including those that have an illegal second unit or accessory apartment) based on interior and exterior property inspections. Form 1004 also may be used for two-unit properties, if each of the units is occupied by one of the co-borrowers as his or her principal residence or if the value of the legal second unit is relatively insignificant in relation to the total value of the property (as might be the case for a basement unit or a unit over a garage). In addition, appraisals for units in condo projects that consist solely of detached dwellings may be documented on Form 1004, if the appraiser includes an adequate description of the project and information about the homeowners’ association fees and the quality of the project maintenance. Appraisals reported on Form 1004 must be completed in accordance with the UAD Specification. |
Exterior-Only Inspection Residential Appraisal Report(Form 2055)* | For appraisals of one-unit properties and units in PUDs based on exterior-only property inspections. Appraisals reported on Form 2055 must be completed in accordance with the UAD Specification. |
Manufactured Home Appraisal Report (Form 1004C) | For appraisals of one-unit manufactured homes (including manufactured homes in a PUD, condo, or co-op project, and MH Advantage properties) based on interior and exterior property inspections. |
Individual Condominium Unit Appraisal Report (Form 1073) | For appraisals of one-unit properties in condo projects based on interior and exterior property inspections. Appraisals reported on Form 1073 must be completed in accordance with the UAD Specification. |
Exterior-Only Inspection Individual Condominium Unit Appraisal Report (Form 1075)* | For appraisals of one-unit properties in condo projects based on exterior-only property inspections. Appraisals reported on Form 1075 must be completed in accordance with the UAD Specification. |
Individual Cooperative Interest Appraisal Report(Form 2090) | For appraisals of one-unit properties in co-op projects based on interior and exterior property inspections |
Exterior-Only Inspection Individual Cooperative Interest Appraisal Report(Form 2095)* | For appraisals of one-unit properties in co-op projects based on exterior-only property inspections. |
Small Residential Income Property Appraisal Report(Form 1025) | For appraisals of two- to four-unit properties (including two- to four-unit properties in PUD, condo, or co-op projects) based on interior and exterior property inspections. |
Appraisal Update and/or Completion Report (Form 1004D) | For appraisal updates and/or completion reports for all one- to four-unit appraisal reports. |
I hope this article has been useful, please feel free to ask more about appraisals here, or if you want to apply you can do so here. You’re always welcome to contact me directly via my contact information below. Thank you!
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Justin Scott
Loan Officer
NMLS 878581
- C) 920-530-4484
- O) 920-490-8823
- F) 920-490-8967
Executive Mortgage
NMLS 271650
909 . E Walnut Street
Green Bay WI 54301