A document that gives an estimate of a propertys fair market value; an appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.
You probably have an opinion of the value of your home. Your opinion and a professional appraiser's opinion may be the same. But appraisers are required to be objective and impartial in their analyses and opinions. A professional appraiser has been trained in appraisal methodology and looks at how your home compares with sales and listings of homes similar to yours, considers many factors such as price trends and proximity to a freeway, complies with professional standards, and usually completes a written report.
It is important to note the appraisal process and inspection for FHA and VA loans in particular may be significantly more rigorous than a conventional mortgage.
An appraisal when completed is good to keep on hand even after the intended transaction is complete. For example, after getting an appraisal for a refinance transaction, this same appraisal may come in handy to give you a point of reference should you wish to sell the property at a future date.
A fee is paid to an appraiser, who is qualified by education, training, and experience to estimate the value of real and personal property. Appraisers usually charge one fee for a single-family home and slightly higher fees for a two-family, three-family, or four-family home.
Appraisals are much more likely to come in under the expected value in a re-finance transaction than in a purchase transaction. Simply because homeowners often unrealistically over estimate the value of their homes.
Eventhough the borrower pays for the cost of the appraisal report, it is in the name of the lender bank or mortgage broker. By law, borrowers have the right to receive a copy of the Appraisal Report. In fact, lending institutions are required to disclose to the borrowers that they have this right.
The fair market value that is determined by the appraisal is not just what an evaluation of what your house is worth, but what a potential buyer in that market would be willing to pay for the property.
Although appraisals rarely come in under the purchase price, it happens. What are the implications of a low appraised value? For one, the buyer overpaid, at least in the eyes of the appraiser. An appraisal is nothing more than just the appraiser's professional opinion on the "fair market value" of the subject home. The "fair market value" of a home is subjective. What it's worth to one buyer is often not worth as much to another (otherwise the first buyer would have been overbid). In a purchase transaction, the buyer often use the low appraisal value as leverage to negotiate a lower purchase price. Unless being in an overheated real estate market where the seller is certain he will find another buyer, the seller would often agree to a lower price for fear of not finding another buyer in a short time, and the recurrence of a lower appraisal value with any subsequent buyers.
Another possibility the appraised value may come under the purchase price is that the appraiser may not be familiar with the neighborhood. This happens most often when the bulk of the appraiser's work is not in the same vicinity of the subject home, or that the subject property is located in a rural area when there are no usable comparable sales. If a home buyer believes this is the case, he should request a copy of the appraisal report from the lender, check the comparable properties chosen and determine whether they are valid comparables.
There are several kinds of appraisals including an Automated Valuation Model, a Full Interior and Exterior Appraisal, and a Limited Exterior Appraisal. Some loans such as home equity loans under $100,000 don't require a full appraisal, while home loans over $2 million will require two full appraisals.
Costs for appraisals can vary depending on which company is used. Sometimes the cost can be inclusive in the loan fees and other times it will need to be paid when the appraiser comes out to the home. In any event, the appraisal evaluation is one of the key components in what loan amount each individual borrower will qualify for.
The appraisal in not to be confused with the home inspection. While an appraisal is completed for the value of the home alone, the inspection is performed to uncover potential problems that may be present in the home. It's very important to have both done on the property.
