What is an appraisal?
An appraisal is an estimate of a property’s value, prepared by an independent third party. Mortgage Lenders generally require an appraisal as a condition of approving the loan.
Who pays for the appraisal?
In most cases, the borrower will be responsible for the cost of the appraisal. If the purpose of the loan is to purchase property, the buyer may need to prepay this cost at the time of application.
How does the appraiser determine the value of property?
There are several factors in determining the market value of property. The biggest and single most important is the use of comparable sales or "comps." These are homes that are fairly similar to your home in size, location and amenities/upgrades. The appraiser will try to locate three comps that sold within one mile and within the last three to six months from the time of inspection. They will use these comps as a starting point and make adjustments to each sale for the differences between your property and each of the comps. They are trying to determine what the home would have sold for had it been exactly like this home. When this is completed, he/she will determine the final value estimate and turn the report over to the lender.
If you are selling your home, the buyer's lender will chose their own appraiser and you have little power in this situation, except to decide to have an appraisal done BEFORE you place your home on the market. This is perhaps the wisest thing you can do for yourself. The appraisal fee is worth it many times over to not to make a several thousand dollar mistake on the pricing and marketing of your home. Contact an appraiser, hire them to appraise your home and then you can use that appraisal in your marketing package. This helps to discourage "low ball" offers, as you can present the appraisal as proof of value, from an objective third party who has no vested interest in your home. This is especially helpful if you have a home that is not typical for the area, as noted above (ocean, lake, acreage, custom home, etc.)
Other items the appraiser looks for is the condition and working order of your main working systems such as plumbing, electrical, appliances, heat and air, etc. If you are on a septic tank, they check the yard to make sure there is no evidence of malfunction or backing up, which would show up in your yard.
If you have a 1 bed 1 bath home and it is not common in the area to have a 1 bed 1 bath home, comparable sales may be hard to find and will likely be homes of lesser value due to the room count. Therefore, your appraised value could suffer. There is a section on the market grid of the appraisal report that addresses design and appeal and if you have the only log home in an area that has all traditional 4 bed 2.5 bath homes, most appraisers will subtract thousands of dollars off your appraised value for this unique home.
If you are purchasing a home, you have a choice of having the appraisal done after you put together a contract on the home. Make sure that the sales contract says: "Purchase contingent upon the home appraising for at least the contract price or above". You want to make sure that it is worth what the seller is asking for the property. This will save yourself and the seller a lot of headaches later if value is a problem.
How much does this cost?
The cost for an appraisal of a single-family home ranges between $350 and $500. This fee may vary, depending upon the price of home, if it is waterfront or an irregular shape, or if it is an income-producing property. If this is or will be a rental property, the lender will most likely require two additional forms that address rent information. These forms generally cost an extra $75 to $250, depending on the location of the property and whether or not there is an abundance of rental data available to the appraiser. Some unique properties (i.e. waterfront or acreage) may also carry an extra premium.
If I pay the appraiser, why does the report go to the lender?
The appraiser works for whoever orders the report, not whoever pays for the report. Appraisers are independent third parties and usually not affiliated with a lender in any way. Even though the buyer or property owner may pay for the appraisal, the report will go to the lender, if the lender places the order for it.
What if I decide to use another mortgage company after the appraisal has been completed?
This does not necessarily mean that you would have to pay for another appraisal. Some appraisal firms may charge a small fee for to transfer the report because there usually is a need for reprinting and packaging the report in the new lender's name. However, the fee will be nowhere near the cost of a new appraisal. If the lender orders the appraisal, then the appraiser is looking out for the lender’s best interests. Frankly, this is also to the borrower’s advantage. No one wants to pay $100,000 for a home that really is only worth $90,000. The appraiser is a disinterested third party to the transaction, yet provides benefits to all involved parties. This is one cost of the transaction that is well spent.
For more information contact JoAnn Young 321-243-4917 or email JoAnn@myFLdreamhome.com
