There may be different steps to be followed in getting a loan for purchasing a house: a vital step in the entire process is the real estate appraisal. Understanding precisely what an appraisal is about and what role it plays in helping you through the convoluted process of lending will set a more accommodating path for you. Here follows a comprehensible rundown of what the real estate appraisal is all about and why it is essential to secure a loan.
What is a Real Estate Appraisal?
The appraisal is always carried out by an appraiser trained and licensed for that purposes. An appraisal is the impartial estimation of value by a licensed appraiser. The appraiser considers the property’s condition, its location, and some comparable sales in the area to establish fair market value. This report is usually required by the lenders to compare the stated value of your property relative to how much they are willing to lend you.
Why Does an Appraisal Matter?
An appraisal protects an investment for the lender. Lenders want to rest assured that a property is really worth the amount of the loan. In case of borrower default, the lender will have to recover its investment if they sell it. A proper appraisal would ensure a minimal risk of lending more than the property is worth.
2. Helping the Borrower: An appraisal clarifies for potential buyers what the fair market value is for the property. Working with this information, buyers can make decisions about the sale, work toward negotiating offers, or rethink a loan.
3. Complying with the Law: It is required by law that many lenders obtain an appraisal for loans, particularly federally insured loans. In this way, lending practices become standard, and borrowers are protected from inflated property values.
The Appraisal Process
Selection of an Appraiser: In most cases, lenders will select an independent certified appraiser in order to obtain value with objectivity. The borrower may also request a specific appraiser although this is generally left to the discretion of the lender.
Property inspection is, however, conducted after he is assigned the valuation task. An appraiser is sent to the property for detailed inspection. This inspection includes such factors as property size, physical condition, various features, and general attractiveness to the buyer. All appropriate data will be recorded and photographed to verify his/her conclusions.
Comparative Market Analysis: The appraiser shall look into the recent sales of comparable properties (or comps) in the area in order to assess fair market value based on similar property sales.
Final Report: After going through the above procedures, the appraiser once again returns to prepare a report that contains all pertinent information. The report includes the value of the property, a description of the property, a description of the methodology used to arrive at the noted value, and the data on similar underlying sales.
Normal Expectations from the Appraisal Reports
The appraisal report will be composed of:
Property Description: A plain description of the property to include the address, size, and special features.
Market Analysis: Review and analysis of the local real estate market, including trends and demand thereof.
Comparable Sales Data: Data regarding recently sold properties of a similar type, size, location, and condition.
Conclusion of Value: The definite opinion of the appraiser as to the value of a given property and the reasoning for that conclusion.
Problems That Are Common in Appraisals
Low Valuations: If the appraisal comes in lower than the agreed purchase price, this could compromise the loan process. In this case, buyers would have to negotiate with the seller or put in a higher down payment.
Appraisal Contingencies: Most purchase agreements contain an appraisal contingency that allows the buyer to back out if the value of the appraisal is not adequate. Knowing this clause could save the buyer should any discrepancies arise.
Notifying the Appraisal Officiants: When a reason is produced that clearly shows the appraiser acted unwarrantedly, a reconsideration on behalf of the buyer could be requested. This is the process through which additional data or evidence is supplied to an appraiser in support of a position contrary to that of the original appraisal.
Tips for a successful appraisal
Preparing the Property: Be sure to clean and maintain the property so it can be accessed easily. Small repairs or improvements made to the property may prove beneficial with respect to its valuation.
Provide Documentation: Opportunities included for relevant documents could be recent improvements, maintenance records, and comparable sales. If you do this, you will help the appraiser understand the fair value of the property.
Communicate: Stay tuned in with your lender as the appraisal takes place in order to keep abreast of any issues and timelines.
Conclusion.
Real estate appraisal is a crucial aspect of the loan process for both lenders and borrowers that should, therefore, be duly protected. With a basic dictionary of what it is and how it is to be appreciated, a better experience should be engineered for one in financing property purchases. Although it is indeed informative, a solid real estate appraisal represents one of the key functions in establishing value other than just a potential builder-reminder in helping you realize your dreams.
