Between finding a house, making offers on properties, and obtaining financing, you may not be focused on what comes next in the buying process. However, preparing yourself for each next step is a must if you want to maintain a timeline that gets you in your new home as soon as possible.
When you buy a home, a bank appraisal is required before the sale can move forward. The appraisal is a crucial part of the process as it will be the primary determinant in how much your new house is actually worth. Increase your knowledge on appraisals, so you know what to expect when the time comes for yours.
1. Bank Appraisals Confirm The Property’s Worth
If you’ve paid attention to the news in the last decade, you’ve seen plenty of ups and downs in the housing market. Lenders want to know what they’ll be left with should you default on your mortgage, and this can’t be based on a volatile market price. Instead, an appraisal will verify what the property is worth compared to the local area, the wider housing market, and more, so that your lender knows what your collateral is actually worth.
2. Appraisals Happen After The Contract
After you’ve gone through negotiations and finalized the contract, your bank will do the appraisal to guarantee the funds can, and should, be issued. But what happens if you find out that the price you’re paying is hugely inflated?
Just because you have the appraisal doesn’t mean you have to pay that crazy price. In your initial search, you should be reviewing comps – or the sales prices for other homes in the area – and your real estate agent should be well-versed in the area sales so that your offer makes sense both for you now and in the future. Your contract should also cover you by noting that if the appraisal is far lower than the purchase price, you can renegotiate or walk away.
3. The Seller Typically Pays For The Appraisal
The seller will typically be on the hook for paying appraisal costs at the closing. Appraisals can usually run between $300 and $400 and will be performed by an individual with appropriate credentials.
4. An Appraisal Is Not An Inspection
When an inspector surveys your home, they are looking for any problems that are apparent now and any that may arise for you in the future. An appraiser, on the other hand, is valuing the home compared to a larger market. That said, if an appraiser is valuing the house and notices cosmetic or structural deficiencies, he or she may recommend an additional inspection.
5. The Appraiser Will Consider A Number Of Factors To Value The Property
While the appraiser will consider the condition of the property, he or she will also be comparing the essentials – square footage, the number of rooms, etc. – to other similar properties with those characteristics in the neighborhood that have sold. Again, by looking at comparable home values, the appraiser can determine the relative property value for your new home.
The best thing you can do when buying a home is to stay on top of every step to ensure the process moves along. Get started with your financing by answering a few questions here, and a home lending expert will contact you.