Understanding Appraisals in Real Estate Transactions

An appraisal is a important component of a real estate transaction often causing both buyers and sellers to hold their breath in anticipation. What exactly is an appraisal and why is it so important? This article will provide a comprehensive overview of the role an appraisal plays in a real estate transaction.

What is an Appraisal?

In the simplest terms an appraisal is an unbiased professional opinion of a property's value Investopedia. A licensed appraiser performs this assessment which involves comparing the home to recent sales of similar properties in the area, examining the home's condition, size, location, and various other factors.

Why is an Appraisal Necessary?

Lender's orders an appraisal when a buyer applies for a mortgage. The lender uses the appraisal to ensure that the amount of money requested in the mortgage does not exceed the home's worth. This step protects the lender by ensuring that they can recover the loan amount if the borrower defaults and the lender must sell the property.

Who Pays for the Appraisal?

Traditionally the buyer pays for the home appraisal as part of the closing costs since it is a requirement by the lender. However, this can sometimes be negotiated in the sales contract.

The Appraisal Process

The appraisal process starts with a thorough physical examination of the property inside and out. The appraiser will also research similar homes in the area and their recent selling prices. They may also consider the area's crime rates, proximity to schools, and availability of public transportation. All these elements are factored into the final appraisal report which includes the estimated market value of the property.

What if the Appraisal Comes in Low?

If the appraisal comes in lower than the agreed upon purchase price it can create complications. The lender may refuse to approve the mortgage for the original amount leaving the buyer to make up the difference or renegotiate the selling price with the seller. The buyer can challenge the appraisal or request a new one.

Conclusion

Appraisals are a crucial part of the real estate transaction process providing an unbiased valuation of a property to protect both the lender and the buyer. By understanding what an appraisal is and how it works you can navigate your real estate transaction with greater confidence and knowledge.

Hello! I'm Jay Thomas, a REALTOR in Houston, Texas. Chances are you and I share a similar passion, Real Estate! I also have a passion for building businesses, working out, inspiring others, technology, sports, and people. Connect with me on Facebook and Instagram!