An appraisal is an essential step in buying a home because it protects a homebuyer and lender from overpaying. The process involves a licensed appraiser evaluating the condition, location, and size of a house to declare its value. They may consider other factors like the recent home sales in the area and the number of rooms in the property.
The home sale continues if the appraisal value meets or exceeds the asking price. However, sometimes the appraisal ends up with a lower price, delaying or stopping the transaction.
Concerned parties may request multiple appraisals to reach an amenable purchase price.
Who Requests the Appraisal?
Any of the three parties involved in a home sale may request for an appraisal:
Buyer or Real Estate Agent
The buyer or real estate agent may have the home assessed to negotiate for a lower price.
The seller may have their home appraised to reinforce the asking price once the property is on the market.
A homeowner may request an appraisal if they’re planning to refinance their home.
The mortgage lender may hire an appraiser before they approve the loan application. They use the appraised value to recover the total loan amount if the buyer becomes unable to complete payments.
The Appraisal Process
An appraisal takes a couple of hours, depending on the complexity and size of the property. The appraiser will walk around the home, inspecting its interior and exterior.
To complete the process, the appraiser will consider several factors, like:
- Broken doors and windows
- Code violations
- Cracked ceilings
- Leaky plumbing
- Number of bathrooms and bedrooms
- Square footage
- Water-stained walls
The presence of areas that need repair and replacement can lower the property’s value. Sellers can improve their home’s appraisal value by repairing and replacing the concerned parts of the house.
After inspection, the appraiser will provide a report that includes:
- A calculation of the home’s square footage
- A sketch of the exterior
- A street map of the property
- Photos of properties used to compare the value
- Market sales data
- Photos of the property
- Public land records
- Public tax records
There are cases when the appraisal that determined the property’s asking price is higher than the market value. When this happens in bad faith, the appraiser commits appraisal fraud.
Appraisers have years of experience and training, following strict guidelines to come up with accurate appraisals. However, sometimes they are pressured or bribed into inflating the appraised value for these reasons:
- The seller wants to make more money from the sale.
- The buyer wants to be in a better position to finance their mortgage payment.
- The homeowner seeks to get a better home equity or refinancing loan.
Protecting Yourself from Inflated Home Appraisals
The most effective way of protecting yourself from inflated appraisals is by seeking another appraisal. You can also suggest paying the difference between the asking and the appraisal price.
Protecting yourself from overinflated appraisals also involves recognizing common red flags:
Some home flippers buy below market value and then immediately sell the home for a profit. Their appraiser declares the property is worth more than its initial estimate.
- The appraiser undervalues the property so that an investor can buy it.
- The value of the property in the listing is different from the price in the application.
- The price is inconsistent with the location and comparable sales.
A home appraisal is an indispensable step in the homebuying process. Whether you are a buyer or seller, you don’t want the transaction to fall through. Ensure you understand the appraisal process and hire a trusted appraiser before you go through with a sale.