All You Need To Know About Home Appraisals

An appraisal is a professional opinion of your home’s value and is an important step in the home-buying process. Appraisals are conducted by licensed or certified professionals, who provide opinions as unbiased third parties. The appraiser gets paid for valuing your home but has no skin in the game when it comes to whether you qualify for a mortgage or refinance as a result of their estimate.

An appraiser visits your home for about 30 minutes to a few hours to measure its dimensions, examine amenities, and evaluate the overall condition both inside and out, taking photos of the exterior, the garage, and every interior room. Then, they examine the transaction records of properties similar to yours—ideally, properties in your neighborhood that have sold recently. Based on the home visit and these records, the appraiser arrives at a professional opinion of how much your property would sell for if you put it on the market. The bank uses this value—along with your income, assets, and credit history—to determine how much it will lend you and on what terms.1

Appraisal vs. Refinance Appraisal

Appraisals are also needed if you want to refinance your mortgage. As with a purchase appraisal, a refinance appraisal protects the bank by ensuring that it doesn’t lend the borrower more money than the property is worth.
If the property later goes into foreclosure for any reason, the lender wants to be able to resell the property and get its money back.

Who Pays for the Appraisal?

The borrower must pay for the appraisal regardless of whether the loan closes because the appraiser still did the work. While the fee may seem worthwhile if it enables you to get the refinancing terms that you want, it can seem like a waste of money if a low appraisal means that you can’t refinance.
Since lenders cannot discuss a home’s value or anticipated “target value” with an appraiser at the time of assignment, homeowners are not able to get an appraiser’s ballpark estimate of whether their home is likely to appraise high enough for them to refinance before they pay for the service, as they could before the new regulations. At best, you can search for recent comparable sales on websites such as Zillow and Redfin, but these records may be inaccurate or incomplete.
Another option is to ask a real estate agent to do a comparative market analysis (CMA) and provide you with printouts of recent comparable sales from the multiple listing service (MLS),

What Do Appraisers Look for?

The value that the appraiser gives your home largely depends on the recent sales prices of comparable properties. All the same, you’re mistaken if you think that you can’t do anything to help your home come in at the high end of its potential appraisal value.
According to experts, getting your home appraised is similar to going on a first date, as have no idea how your partner will like or evaluate you, being well-groomed substantially improves your chances of being deemed attractive.

The appraiser cares about the following:

• Exterior and interior conditions
• Total room count, with value added to bedrooms and bathrooms
• Functionality, including interior room design and layout, and functional obsolescence
• Improvements to kitchens and baths, windows, the roof, and the home’s systems (heating, electrical, and plumbing) over the previous 15 years that make the home more up to date, functional, and livable by today’s standards
• Condition and age of the home’s plumbing, electrical, and HVAC systems
• Exterior amenities, such as detached garages, decks, and porches. Pools and hot tubs will also add to a home’s value.
• Location
• Unappealing features, such as an exterior appearance that’s inconsistent with the rest of the neighborhood, will detract from the value.

Experts recommend pointing out features that may not be immediately apparent that could potentially add to the appraiser’s opinion of value. Adding that Mortgage lending discrimination is illegal. If you think that you’ve been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps that you can take.

How Do I Prepare for a Refinance Appraisal?

Preparing your home for an appraiser’s visit is different from preparing it for a prospective buyer. When you are opening your home to a prospective buyer, you want to trigger emotional responses.  Still, freshening up the home’s paint, both inside and out, can help, as can clearing away clutter to allow full access and viewing of all areas of the home, including the basement. Be sure that everything works (eg. run your heating and cooling systems and test your kitchen appliances), and make plans for the children and pets to be somewhere else so that they aren’t a distraction

If You Secure a Good Appraisal

Congratulations! You have completed a major step toward refinancing your mortgage and saving money. Now it’s time to go through the next series of steps with your loan officer. If you’ve secured a favorable appraisal, use a tool such as the CFPB’s mortgage calculator to research interest rates on a refinanced mortgage for a home of your value. Being armed with these figures can give you some bargaining power when you meet with your lender.

Source: Joycelyn Marigold