What Is a Home Appraisal And Why Do You Need One?
One of the most important of common real estate contract contingencies is the home appraisal. This contingency generally requires that a property appraises for at least the sales price. Why is this so important?
What is a Home Appraisal?
An appraisal is an objective, unbiased estimation of the fair market value of a house. It features information like recent sales of comparable properties, the condition of the home, construction materials used, number of bedrooms and bathrooms, location and more. Things like the décor don’t come into play, but outdated items like flooring that shows a home’s true age may be factored in.
When is an Appraisal Required?
Lenders will require an appraisal during the mortgage process to make sure that the amount of money buyers are requesting is appropriate, which buyers typically pay for as part of the closing costs. Since the main role of a home appraisal is in the loan application process, all-cash buyers can opt to waive the appraisal contingency.
In some cases, the seller may opt to have an appraisal done to demonstrate the value of their home, especially if factors make it difficult to determine a list price. But be warned: that approach could backfire if the appraisal reveals the value is lower than what you think your home is worth.
What Are the Advantages of a House Appraisal?
For borrowers, appraisals can be valuable in protecting them from paying more for a property than it’s worth. Specifically, if the price a buyer agrees to pay for a home is way above the market value, the appraisal will reveal that, and the lender won’t approve the loan. And that could signal a time to renegotiate the sales price or walk away from the deal altogether.
Whether you’re buying or selling, the home appraisal is an important step in any real estate transaction. Ready to get started on your next move?