Home Appraisals: Why They Matter When Buying or Selling Real Estate
Are you preparing to buy or sell a single-family home, condo, or other type of real estate? The home appraisal is a critical process you won’t want to skip, even if your mortgage lender doesn’t require one for properties selling for less than $400,000. If you’re buying a home that appraises for less than the final sale price, for instance, you can use this information to negotiate with the seller and potentially lower the home’s selling price. If the seller won’t agree to a lower sale price, however, your mortgage lender may require you to make up the difference by increasing the amount of your down payment. Or, you could choose to walk away from the sale at this time.
Presented by The Renovation Directory, we discuss the importance of home appraisals when buying or selling real estate and what you can do to increase the appraisal value of your home when preparing to sell.
What Buyers Should Know
As a buyer, an appraisal prevents you from over-borrowing money from the lender when financing the purchase of a home — while also protecting the financial institution from lending more money than needed. Once your offer is accepted by the seller of the home you wish to buy, an appraisal will be one of the next steps in the process. Learn the different steps in the home buying process — including the appraisal stage — and be sure to review this information when preparing to purchase a home.
Appraisal typically occurs within seven days of the completed home inspection and will be ordered by the mortgage lender. You’ll be responsible for all appraisal costs, which usually run between $300 and $400. If you’re taking out a jumbo loan to finance your home, buying a larger property, or the house is located somewhere unique, the cost of the appraisal could be higher.
Appraisal Advice for Buyers
While you can’t do anything to influence the home’s appraisal value, it’s important to understand your options in the event that the appraisal comes back lower than expected.
These options may include:
- Backing out of the home purchase.
- Negotiating for a lower sale price.
- Increasing your down payment amount.
- Paying for an independent appraisal (but note that these results aren’t always accepted by banks or lenders).
- Requesting a revaluation of the appraisal report.
After receiving your appraisal report, an experienced real estate agent can help you to understand your options and decide the best course of action. Your real estate agent can also help you locate an accessible home that fits your needs.
Tips for Home Sellers
When selling a home, an appraisal estimates the fair market value of the property and is paid for by the homebuyer. And while sellers may choose to order an appraisal before listing their properties, they’ll be better off using a free online home value estimator and making a few value-boosting home improvements and repairs.
Some factors that go into a home’s appraisal value include the following:
- The home’s age, size, condition, location, structure, and neighbourhood.
- External factors such as the roof, foundation, siding, gutters, parking, and other outdoor amenities.
- The home’s layout, number of bedrooms and bathrooms, utilities, and appliances.
To prepare your home for an appraisal, it’s important to clean the home thoroughly, repair or replace anything that’s broken or malfunctioning, and focus on curb appeal. If you’ve made any updates or improvements to your home, be sure to tell your real estate agent as this could affect your home’s appraisal value as well.
The Bottom Line
Whether you’re buying or selling a home, appraisals are important for a number of reasons. Even if you’re financing a property through a lender that doesn’t require an appraisal, it’s best to get one anyway, or you could risk paying more than your new home worth.