What You Need to Know About Appraisals
If you are buying a home and need a mortgage, the lender will require a property appraisal—comparing the sales price you have negotiated to other comparable homes that have sold in the area.
If you are thinking of refinancing your home to pay off a first and second mortgage, or pay off high-interest rate credit card debt, you will also need an appraisal.
Here are some things you need to know:
Who Pays For the Appraisal?
If the buyer of your home needs a mortgage to finance the purchase, they usually pay for the appraisal. However, in some sales contracts, a buyer may ask the seller to reimburse them for the cost of the appraisal at closing.
When refinancing your home, you pay for the appraisal upfront, and sometimes it can be part of the closing costs that can be financed back into your loan.
How Do Appraisers Determine the Value?
They consider pretty much everything. The square footage, how many bedrooms and bathrooms, the kitchen style, the condition of the home and the sales price of other similar homes have sold recently. In addition, appraisers are required to provide a “Condition Code” rating that reflects the integrity and condition of the home—based on a formula provided by the appraisal institute. That also plays a part in the value of the home.
Who Gets to See the Appraisal?
On a purchase transaction, the buyer is supposed to get a copy of the appraisal at least 3 days before closing; however, it’s usually given to them a few days after the lender receives it. Neither the seller of the property nor the real estate agent gets a copy—unless the buyer provides written authorization that it’s okay to share it.
When refinancing your home, you will get a copy of the appraisal.
What If the Value is Lower than Expected?
If you are the seller, and the appraisal value is lower than the sale price, you can either back out of the contact, depending upon the wording in the contract, or you can renegotiate the sales price. The buyer also has the right to appeal the value.
If you are refinancing and you think the value is too low, you have the right to appeal the value, provided you have additional information to help increase the appraisal value (i.e., other comparable properties that have sold or mistakes that the appraiser has made such as the wrong square footage, number of rooms, etc.).
What Can You Do Before the Home is Appraised?
Let’s start with the curb appeal. Cut overgrown bushes, rake the leaves, pull weeds, cut the grass. Inside the home, spruce up by de-cluttering the countertops, cabinets and closets. Vacuum floors, wash tile floors, polish wood floors. If you have made improvements (new roof, deck, new furnace, hot water heater, etc.), give copies of paid invoices to the appraiser before they make an inspection.
If you would like to determine if it’s in your best interest to refinance your home, please apply now to speak with a Lend Plus licensed mortgage banker.