How Accurate Are Home Appraisals?

Are you a buyer or seller and wondering how accurate home appraisals are? In this article, you will understand everything about the entire process. But to do that, you need to understand the home appraisal process in general. 

What Is A Home Appraisal?

The term refers to an opinion from a professional home appraiser on a property’s value. The specialists generate a report based on a house analysis, recent sales of nearby, similar homes, and their judgment. They have vast experience in the real estate industry and evaluate properties to determine their values.

Understanding Home Appraisals Accuracy

From what you know and have seen about the appraisal concept, it would appear that they should be an accurate home appraisal assessment of a property’s actual value and that there’s only one precise value. Moreover, specialists in the field are highly trained, and their work is to determine the actual amount.

If the appraised values are questionable, most people suspect incompetence among the appraisers or some form of fraud. Generally, many people believe the experts possess unquestionable skills and knowledge for determining the precise estimates, which represent a property’s value.

This doesn’t necessarily mean that everything you know about the professionals’ reputation in the field is false. The truth is that appraisals are just opinions. Like any other process, there are challenges during the process.

Home Appraisers Go Through Rigorous Training

To become a licensed appraiser, one is required to study and acquire relevant training for a minimum of three years.

If one wishes to obtain additional skills, it may take up to four or more years. For general certification, people spend up to 10 years improving their skills. Note that this doesn’t take into account the many years of experience in the field. If an appraiser lacks adequate experience or knowledge, they are likely to give an inaccurate report.

This is because they may lack the skills needed to carry out challenging tasks. Also, they usually find themselves less equipped to handle difficult exercises and provide less accurate reports than seasoned professionals. The market conditions also affect home appraisals accuracy.

For example, immediately following the housing market crash in 2007, the number of foreclosures and short sales in the market made it extremely difficult to determine the stability of the market. Giving an opinion in such a market is a major challenge for appraisers. Even experienced and competent professionals may give varying opinions.

If that happens, it may be hard to prove either of them wrong. Even if appraisers are competent and work under excellent conditions, there may be minor differences between two appraisers. If you decide to order two or more appraisals, you are likely to get varying opinions.

A Report Can Be Discarded Under Special Conditions

Some reports can be written off due to incompetence on the part of one of them. Competence is not always an issue in such cases. This is because some tasks are challenging, and different experts view different issues differently, even if both of them are experienced.

There’s an acceptable variance when it comes to home appraisals. It usually depends on the prevailing market conditions. In markets with favorable conditions, the difference should be between 2% and 3% of the other values. For markets with challenging conditions, a 10% difference may be acceptable.

However, this may vary from one case to another. All appraisals must provide an accurate opinion of a property’s value. If an expert is given proper access, time, and budget, they are likely to offer more accurate results than those asked to do random inspections and submit their opinions within a short duration.

There are many considerations when evaluating appraisals. Some factors are beyond the control of the parties involved but still affect the home appraisals accuracy. Home appraisals accuracy is often associated with an appraiser’s competency, market conditions, and the scope of an exercise.

One of the variables you can control is choosing an experienced appraiser to do the work. Also, you can ensure higher home appraisals accuracy by providing adequate resources such as time and budget. If you work with a competent appraiser and request a report under favorable market conditions, the chances of getting a perfect appraisal are high.

What Is a Low Home Appraisal And Are They Accurate?

In most cases, home appraisals have no impact on mortgage loans, as the value is the same or higher than the contract’s price. However, about 8% of the time, the property’s appraised value may be less than the price the buyer and seller have agreed on. If that happens, the applicable mortgage interest rate may increase.

A home buyer may be disqualified for a loan due to low appraisal. There are several reasons for this scenario. First, there may be inflated prices when there are multiple offers, and market values may decline if fewer buyers are going for a large inventory of houses. The market prices can also rise when the inventory is limited, and there are few comparable sales.

Another common reason for low home appraisals is if you hire an inexperienced appraiser. For example, an expert may overlook existing data, which may indicate higher comparable sales. In some cases, they may consider sales from the wrong locations. However, this is rare, as there are established guidelines and processes for the exercise. Other common reasons for low appraisals include incorrect evaluations and overpricing a home.

There are several options to consider:

  • First, a home buyer can make up the difference between the market value and appraised value in cash.
  • A lender will only care about the reports if they affect the loan-to-value ratio.
  • A low appraisal doesn’t necessarily mean you will not secure a mortgage loan.
  • Financial institutions consider the ratio the parties have agreed upon when giving loans.

The second solution is reducing the price when a house is overpriced, or the value is inflated. By doing so, the buyers and lending institutions will be satisfied. Alternatively, another option is for the sellers to carry a second mortgage for the difference. Payment at a later date may be a viable option if a buyer wants a property but can’t afford the difference at the moment.

You can also dispute the first and request a second appraisal. Next, contact your financial institution and inquire about their dispute processes. If a lender is unsatisfied, they can ask for a second opinion. Generally, only a buyer can request another report. In some cases, their request may not be honored.

Some sellers split the appraisal cost with the buyers. If you believe there was inadequate data on comparable sales, you can supply a list of recent sales in your area. Once you have submitted it, an underwriter will go through it and ask for a review of the entire process.

Who Pays for Appraisals, Buyer, Or Seller?

Usually, the buyers pay for the appraisal. However, this is not always the case. Note that all aspects of purchasing a real estate property are negotiable, including home appraisal fees. When it comes to the buyers’ market, buyers often get the sellers to cater for them and other closing charges. However, this rarely happens in a sellers’ market.

Therefore, it varies depending on the local real estate conditions. In most cases, the buyers pay for the appraisal in-home selling situations. This is because it’s their mortgage lenders who request appraisals. Why is an accurate home appraisal important for lenders?

Why Do You Need An Accurate Home Appraisal?

First, they provide loan guarantees. When someone applies for a mortgage loan, their homes become the collateral. If a borrower fails to make payments, a financial institution can take possession of their property, sell it, and use the money to pay off the amount they owe.

Lenders use appraisals as proof that a property’s sales value aligns with its real value. It assures them that a home’s value is sufficient to enable them to recoup their money if a borrower defaults. By knowing the estimated value of a house, a financial institution can offer loans of a reasonable amount to the customers.

A mortgage lender can recover their money after selling a property if a buyer fails to honor their obligations. For example, if a lender offers a loan worth $400,000 for a house worth $250,000 and a borrower fails to repay their debt, they may have difficulties trying to recover their money when reselling a home in foreclosure.

An accurate home appraisal prevents such situations and helps to safeguard a lender’s assets. Ideally, if a financial institution can lower the risk, they will likely offer loans at favorable terms. Even if lenders are not involved in a real estate deal, a home appraisal still offers more benefits to the buyers than the sellers. An accurate home appraisal shows a buyer how much a property is worth in the prevailing market.

With an accurate home appraisal, buyers will not overpay for a home. Although appraisals are requirements by lending institutions, the buyers tend to assume the appraisal fees, which accounts for the appraiser’s time and expertise during the exercise. However, the money is worth it. When buyers know the estimated property value, they can negotiate a fair sale price and avoid overpaying.

The exercise also benefits the sellers, as they avoid making low offers. If they know the actual market value, they avoid accepting unreasonably low offers from potential customers. By doing so, they maximize their returns on their investment.

Contact ExcelAppraise For Accurate Home Appraisals

Want to sell or buy, get in touch today to get an appraisal from qualified professionals. Call us at 1-801-882-2292 or request a free quote today!

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