There are many steps when entering into a contract on the home of your dreams. Financing, inspections period and perhaps the most crucial the APPRAISAL.
What is an Appraisal?
A Home Appraisals is simply a written estimate of a properties value. This value is based on a market analysis of recent sales for similar properties in the area. A third party appraiser hired by the lender will take three approaches when determining the appraised value of a home.
- Cost Approach – Simply estimate the cost to replace and improvements on the property
- Comparison Approach – Looks at similar properties that have recently sold in the area
- Income Approach – Used only in commercial properties to determine the net income a particular property produces
Why is an Appraisal Required?
Lenders require an appraisal on your home before they will agree to the loan amount requested. Since the property is the underlying asset that servers as collateral for the loan. In the event that you as the homeowner become unable to continue making payments on the loan and foreclose on the property the lender would need to sell that property to repay the loan. A lender will not lend more than the value of the property or appraised value.
Who hires the Appraisal?
The lender will be the one to hire the appraiser and the fee for the appraisal usually between $300 – $500 will be included in the borrowers closing coast outlined in the Good Faith Estimate.
What Factors affect the Appraised Value?
- General condition and age of the home
- Size of the property square footage
- Location of the property
- Features of the home whether its a 2 bedroom 1 bathroom home etc.
- Any major structural improvements that have been made such as additions or remolded rooms
- Architectural Features A skylight in the kitchen or fireplace
What if the Value is not what I expected?
In an ever changing market sellers and buyers are often surprised when an appraised value comes in higher or lower than what they expected. Fortunately a higher appraised value does not affect the loan process; but a lower one will put a halt to the loan process. Let’s say the purchase price of the home your interested in is $100,000 and the appraised value comes in at $90,000 remember the lender will not lender more than the appraised value so at this point there are only 2 options on the table
1. You as the buyer need to give a bigger downpayment to cover the $10,000 since the lender will only lend $90,000 on the property.
2. The Seller would have to lower the sales price to $90,000
In the event neither option suits the buyer or seller make sure that before you enter into a contract for the home your realtor selected the option on the contract that states the contract is *contingent upon appraisal*
We will be glad to assist you in selling your home, renting your home or determining your homes value and assist you in locating a home. We at searchbroward.com are geared to provide real estate service with the goal in mind of keeping your home process simple, professional, and personal. We will help you find a home and apartments for sale and for rent in Broward County Florida.