One word that packs such a punch! The property appraisal is a critical factor in any mortgage transaction. Wikipedia describes a property appraisal as “the process of developing an opinion of value for real property.” Yep that about sums it up. So few words for such a big deal. Let’s start at the beginning, and work our way up to the practical application of the appraisal.
A seller decides to sell his property. He speaks with his Real Estate Agent, and together they come up with a value for the property. They put it on the market, and a buyer agrees to pay the stated price for the home. We’re done- buyer agrees to buy and seller agrees to sell – all finished right?….not exactly.
A property appraisal, as defined by Miriam Webster is “to set a value on : to estimate the amount of ” or “to evaluate the worth, significance, or status of; especially : to give an expert judgment of the value or merit of.” The mortgage company will use the appraisal to determine the market value. Or the most probable price a property should bring in a competitive and open market. The property appraisal is used to determine if the sales price is accurate based on the condition of the home in comparison to similar homes in the area. The appraiser is hired by the mortgage company, and he or she is selected at random. Your lender will not know which appraiser has been selected to appraise your property until the appraisal report is complete.
A big component of an appraisal is how your property compares to other similar properties. In general, a comparable property is one that is no more than four miles from the subject property, of similar size and with similar finishes. The comparable properties are perhaps the largest component of the appraisal. This is where the subject property is compared to others in the area. It is imperative that the appraiser use properties that are of similar size and construction. If there are no direct comparable available, adjustments must be made to accommodate the differences. For example, if you are purchasing a two bedroom, two and a half bath property but your property is the only one with a half bath with in the radius, the appraiser can slightly adjust your value to include the half bath.
There are many many more twists and turns to an appraisal, but these are the biggest ones. Please call or email today if you are in the market for a new home loan.