Home Appraisal: What You Need to Know
Getting a home appraisal might seem like a big deal, but it's not as scary as it sounds! Here’s what you need to know about appraisals when buying a home, and a common myth about what affects a home’s value.
Key Takeaways
Why do lenders require property appraisals before closing?
How much does the home appraisal cost?
What does the appraiser look for?
What’s a common misconception about what affects a home’s value?
What happens if the appraisal comes back lower than expected?
Why Do Lenders Require Property Appraisals Before Closing?
After the home inspection, your lender will ask for a property appraisal. Lenders need appraisals to make sure the loan amount is fair compared to the home's value. The home is the collateral for your mortgage loan, so lenders want to ensure the loan amount doesn’t exceed the home’s value.
How Much Does the Home Appraisal Cost?
An appraisal costs around $300 to $450, depending on your location. Sometimes, the seller might agree to pay for it.
What Does the Appraiser Look For?
Appraisers focus on the overall condition of the home and any big issues that might lower its value. Many people think that small details like paint or decor have a big impact, but appraisers look at things that are harder to change, such as:
Location
Neighborhood amenities
Property age
Square footage
Number of bedrooms and bathrooms
They also compare your home to similar homes that sold in the area within the last year to help determine its value.
What Happens if the Appraisal Comes Back Lower Than Expected?
Ideally, the home’s value matches the purchase price, and everything goes smoothly. But if the appraised value is too low, the lender might not approve the full loan amount, which can delay closing. This isn’t necessarily a deal-breaker.
Your mortgage advisor and realtor can help you find a solution. Here are some options:
Renegotiate with the Seller: Ask the seller to lower the purchase price to match the appraised value.
Order Another Appraisal: If the first appraisal missed important details, your lender might order a new one.
It’s a good idea to include an Appraisal Contingency in your offer. This means if the appraisal is too low and you can’t come to an agreement, you can back out of the deal without losing your earnest money.
Home Appraisal Summary
Lenders need appraisals to ensure the home’s value justifies the loan amount.
Appraisals cost around $300 to $450, and sometimes the seller pays for it.
Appraisers focus on long-term, hard-to-change factors like location, size, and number of rooms, and compare the home to recent sales in the area.
If the appraisal is too low, you can negotiate with the seller or order another appraisal. An Appraisal Contingency protects you in case the deal falls through.
By understanding the appraisal process and working with your realtor and mortgage advisor, you can navigate any challenges and move closer to owning your new home.
