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What
An Appraisal Entails
An
appraisal is, simply, an "opinion of value" by a professional
appraiser who visits the home and inspects the size, condition,
quality and function of the home. The appraiser will generate a
detailed report and will generally use comparisons to the sale
prices of similar homes in the area to determine a value of the
home that is being appraised--known as the "subject property.
Comparisons can be made to square footage, appearance, amenities
and overall condition.
An
individual home's value can be adjusted up or down in relation
to what properties are actually selling for in the neighborhood.
For example, a home with 4 bedrooms will generally carry a
higher value than a home--in the same area and in roughly the
same condition--with only 3 bedrooms. A home that needs exterior
painting will carry a lower value than a similar home that has
been recently painted.
Why
An Appraisal?
A
professional appraisal protects both the lender--so they don't
lend too more than a property is worth--as well as they
buyer--so they don't PAY too much. If a buyer gets into the heat
of the moment and offers a silly (too high) price on a home, the
appraisal will often flush it out.
Who
Does the Appraisal?
The
appraisal will be done by a professional appraiser--in virtually
all cases one selected by the lender. Unlike a whole-house
inspection, where the buyer should accompany the inspector,
buyers rarely are present when an appraisal is done. In most
cases, the buyer does not even know the appraisal has been done
until after it is completed and is in the lender's hands.
How Does an Appraisal and Inspection Differ?
A whole-house inspection is concerned only
with the condition of the home. In an appraisal, condition is
only part of a larger picture--including size, neighborhood and
general location. Although an appraisal will address the
condition of the home (for example, if it needs a new heating
system or roof) it should NOT be relied upon as a final
determination of the quality of the property. A whole-house
inspection is a buyer's best protection against potential
defects in the home they want to buy.
Summing Up
Although an appraisal is another cost that
must be absorbed by the buyer, it can be money well spent. An
investment of a few hundred dollars may prevent a buyer from
paying more than what a property is worth. For this reason, we
have some reservations with mortgage programs which have
recently introduced options for either foregoing a traditional
appraisal or obtaining only a "watered-down" (for example,
driving by the home only) one--especially since the buyer
usually has to pay a fee for this service. The $300 to $500 fee
for a full appraisal could prevent paying thousands of dollars
too much for a home.
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