There are three values associated with your home: Market value, assessed value, and appraised value. A home’s market value is what it might fetch on the market if a willing buyer wants it. Your home’s assessed value is what your municipal taxing body believes it’s worth. By contrast, your home’s appraised value is based on much research by a licensed real estate appraiser. The appraised value is often your home’s most important value, though, and is stated through an appraisal.
There is a significant reason why a home’s appraised value is essential to homeowners and homebuyers. If you own a home and want to sell it, the chances are excellent that any buyers who wish to purchase it will need a mortgage loan, with a property appraisal, to do so.
Also, if you want to refinance your home, the lender will generally require you to pay for a home appraisal. As a homeowner, you may also need a home appraisal for insurance or estate planning purposes. There are many reasons why appraisal reports are essential to homeowners and homebuyers.
Why Appraisals Matter
The appraisal matters a great deal when it comes to home selling and home buying, and here’s why:
- Home mortgage lenders almost always require an appraisal from a licensed appraiser before they will approve a mortgage loan on any home purchase.
- Mortgage lenders usually don’t lend more money on a home than the appraisal says that property is worth.
- Knowing your home’s appraised value could make it easier to price it before you put it up for sale. An accurate appraised value for your home often makes it possible to attract more buyers.
- The appraisal helps protect both hopeful homebuyers and mortgage lenders during the home purchase process.
The Appraisal Report
Licensed home appraisers complete the vast majority of home appraisals using the Freddie Mac and Fannie Mae Uniform Residential Appraisal Report, URAR. This report is also known as “Form 70” or “Form 1004,” depending on whether it’s a Freddie or a Fannie appraisal.
Fannie and Freddie are historically the two largest “government-sponsored entities,” or GSEs, investing in conventional or non-government-backed mortgage loans. Mortgage lenders typically require home appraisers to use the URAR appraisal for reasons that include:
- Thoroughness. The URAR is very thorough and allows for local real estate market sales of nearby comparable homes, or “comps,” to help determine a home’s appraised value.
- Government-backed FHA-insured and VA-guaranteed mortgages also allow the URAR’s use, meaning the appraisal is standardized for most mortgage situations. A standard home appraisal helps cut down on the amount of paperwork every mortgage generates.
Appraisal Report Process
The process licensed home appraisers employ to generate an accurate appraisal can be technically complex. A home appraisal requires a personal assessment of the property by the appraiser and market and other research about the home before the appraiser generates a report. Here are the general steps involved in creating a home appraisal:
- The home appraiser receives an order for an appraisal.
- Before visiting the subject property, the home appraiser conducts preliminary research on it.
- The home appraiser then visits the home being sold and uses the URAR and other forms to help conduct the appraisal.
- After visiting the home and conducting the appraisal inspection, the appraiser then carries out more research.
- Appraisal research typically includes comparing a home’s selling price to recent nearby sales of homes having similar characteristics. These home appraisal characteristics include square footage, number of bedrooms and bathrooms, and many others.
- After all research is completed, including gathering data on three nearby comparable properties, or “comps,” the appraiser completes the URAR and calculates an appraised value.
- For mortgage loan applications, the completed appraisal is sent directly to the lender for its use in the loan process.
Steps To Take As A Home Seller
If you’re a home seller, there are some steps you can take to ensure the appraisal on your home is the best it can be:
- Home appraisers frequently offer their services to homeowners needing an appraised value before listing their homes for sale. Check with your local home appraiser for a service quote.
- Before your appraisal, ensure your home is in excellent condition. Clean up any clutter and freshen up the exterior to improve its “curb appeal.” Shabby-looking homes are frequently worth less than fresh-looking homes.
- Once you have your home appraisal in hand, correct any noted issues to improve its potential value additionally.
Market Value vs. Appraisal Report
Real estate brokers are sales professionals. They frequently provide clients with a market value for their home to decide on a suggested sale price. A home’s market value can track with its appraised value, but this sometimes isn’t the case. What happens if the home you’re selling to a buyer comes in with an appraised value that’s lower than its sale price?
- You and the buyer could try to renegotiate your home’s sale price to reflect its appraised value.
- In a hot seller’s market, your home’s prospective buyer may decide to make up the difference between your home’s sale price and its appraised value.
- In the event of a low appraisal report and value, your home’s buyers may try to back out of the deal if the sale contract allows.
- Your home’s buyer could ask for another appraisal, though that adds time and money to everyone’s bottom line.
Appraisal Report Cost
The cost of an appraisal report varies by state. However, $400 to $500 is common when it comes to an average single-family home. Also, the appraisal cost of a larger or more expensive home may be higher. In most cases, if you’re buying a new construction home and financing it, you’ll also pay for the cost of the appraisal. If you’re selling your home, the buyer usually pays for the cost of any appraisal ordered by their mortgage lender.
Contact ExcelAppraise To Learn More About Appraisal Reports
If you’re a homeowner and want to sell your home, you may wish to gain a good idea of its appraised value before putting it on the market. Many home appraisers also work closely with hopeful home sellers to help them answer the question “What is an appraisal report?” and determine an appraised value for their home before they put it up for sale. Finally, only use a licensed and experienced home appraiser when you need an accurate appraised value for your home.