When buying or selling a home, understanding the home appraisal process is crucial. It’s important to know what an appraisal is, how it’s conducted, and why it’s important to your real estate transaction. After all, deals can either proceed without issue or totally fall apart due to this critical step in the home buying process.
Let’s dive into how a home is appraised and what you should know.
What Is a Home Appraisal?
A home appraisal is a professional opinion of the worth of a property. The appraisal is based on various factors and market conditions. The appraiser’s job is to view this home and compare it to recent sales, current listings, and market trends.
An appraiser will visit the home you are considering purchasing to start the process. He will then also drive the neighborhood in order to see the homes that have most recently sold as well as what is still on the market.
Why is a Home Appraisal Important?
Most importantly, a professional appraisal is the only opinion of value that your lender or bank cares about. Banks care about protecting their investments, so they send an appraiser to ensure the home you are buying is worth the amount they are investing in it. Simply put, the bank doesn’t want to lend you $500,000 on a property that is only worth $300,000.
An appraisal may also give you peace of mind. If you are not buying homes everyday, or you don’t know the market of the neighborhood you are interested in, it is helpful to have a third party’s opinion of the value of the home. An appraisal will either affirm the price you are paying, show that you may be getting a great deal, or inform you that the market does not support the price you are paying.
When is a Home Appraised?
When you buy a home, it is best that you order an appraisal after you complete the home inspection process. It is best to ensure that the home meets quality standards through an inspection prior to spending additional money on the appraisal.
Key Factors in a Home Appraisal
- Location
- Not only does the neighborhood matter, but specifics matter too. The appraiser will look at positive aspects of a location, like being set into an established neighborhood, or negatives – like being near a very busy road.
- Size
- The size of the home is another critical factor. Appraisers typically compare the home to similar properties within 15% of its size. Only livable space is considered, including continuous and finished areas. The number of bedrooms and bathrooms can also influence the appraisal.
- Year Built
- The age of a home affects its appraisal value. Homes built in different eras have varying levels of wear and updates. Appraisers compare your home to other properties from the same build period to gauge its value accurately.
- Upgrades
- Recent renovations and upgrades can increase a home’s value. High-quality materials and modern finishes are valued more than outdated or low-grade materials.
- Improvements
- Additional features such as pools, garages, or casitas can add value to your home. Appraisers adjust for these improvements so that these permanent improvements are reflected in the opinion of value.
- Condition
- The condition of the property plays a significant role in its appraisal. Well-maintained homes generally receive higher appraisals than those in poor condition. Appraisers assess factors like paint, roof age, and general upkeep.
- Competition
- The level of competition in the market can impact your home’s appraisal. Homes with multiple offers and competitive bidding are more likely to appraise higher compared to those that have been on the market for an extended period without offers or price adjustments.
- Defects
- Depending on what kind of loan you are putting on the home, an appraiser may be searching for defects. For example, if a home has chipped or peeling paint, that paint must be fixed prior to closing for a VA or FHA loan type.
Additional Considerations
Remember that appraisals are opinions. Value, much like beauty, is subjective. Each appraiser may have a slightly different approach or expertise in the area you are searching, leading to variations in appraisal values. In many cases, appraisers know how much you are paying for the home, and they are trying to create a case to support the value you are paying.
Why Understanding the Appraisal Process Matters
Understanding the home appraisal process helps you make informed decisions whether you are buying, selling, or refinancing a property. While the appraised value is important, remember that your personal preferences and needs are equally significant in determining the true value of a home to you.
For more information on buying or selling a home, or to start your home search, visit Harding AZ Real Estate. To start a conversation about your specific situation, call John Harding at 480-639-9640.
Happy home searching!
