First Home Purchase? What To Expect From The Real Estate Appraisal Process
A first home purchase is an excellent opportunity to learn about each part of the buying process, including the real estate appraisal. While most buyers understand that the appraisal is of critical importance to a successful purchase, they may not understand how it is performed or what to expect during the process.
If you are preparing to purchase your first home, this information about the real estate appraisal process will help provide you with a better understanding of its importance.
Why is a real estate appraisal necessary?
The main purpose of a real estate appraisal is to provide an unbiased, professional opinion on the value of the property being sold. Real estate appraisers go through a rigorous training process before they can become licensed to perform independent appraisals.
Most real estate appraisals are done to provide lenders with documented proof that the property value can support the amount of the mortgage loan that will be issued. If the appraisal report does not cover the amount of the mortgage, the buyer and seller may need to negotiate a lower price or even cancel the deal.
Real estate appraisals can also be used for other purposes unrelated to mortgage loans, including:
- to provide assurance of value when the real estate will be purchased for cash
- to provide valuable information during the writing of a will or the formation of a trust
- to provide valueable information during the division of property due to divorce
Appraisals are also used to establish updated valuations when homeowners want to refinance their home loan or plan a major renovation project.
How the appraisal differs from an inspection?
The home inspection is sometimes confused with the appraisal process but they are quite different. The inspection, which typically occurs before the appraisal, is done to ensure that buyers are fully aware of the home's condition and any repair needs or flaws that may be present.
The appraiser can assign more or less value to the home based on condition. However, the appraisal's sole purpose is to reflect the current market value of the property so that lenders can decide if it can properly support the mortgage loan amount being offered to the buyers.
What does the appraiser use to determine value?
Real estate market values fluctuate constantly, due to market demand, condition, local influences, and other factors. Because of this fluctuation, real estate appraisers utilize comparable property data to arrive at the current market value, including recently listed, sold, and pending properties that have similar characteristics to the property being appraised.