Whether you’re buying a new house, selling a house, or refinancing an existing mortgage, a home appraisal is a key component of each transaction. Understanding the appraisal process and how it impacts your home’s value is extremely important. The more you understand, the smoother the transaction will be.
What Is a Home Appraisal?
A home appraisal is an objective, professional assessment of a property’s market value conducted by a licensed appraiser. Lenders require appraisals to ensure they are not lending more money than a property is worth. The appraisal protects both the lender and, ultimately, the buyer from overpaying for a property.
How Is the Appraisal Value Determined?
Appraisers use a methodology called the “sales comparison approach,” which involves comparing the subject property to recent sales of similar homes (called “comparables” or “comps”) in the same area. They make adjustments for differences in size, condition, features, and location. The more similar the comps are to the subject property, the more accurate the appraisal.
What Do Appraisers Look At?
During the physical inspection, the appraiser will examine the home’s size, layout, condition, age, construction quality, and features. They will note the condition of the roof, foundation, mechanical systems, and interior finishes. They will also evaluate the property’s location, lot size, and access to amenities.
What Happens if the Appraisal Comes in Low?
If the appraisal comes in below the contract price, the lender will only approve a loan for the appraised value. This creates an “appraisal gap” that must be addressed. Options include: the seller reducing the price, the buyer paying the difference in cash, both parties splitting the gap, or the buyer challenging the appraisal with additional comps. Your Avonya agent will guide you through this negotiation.
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