If you’re financing your home purchase, a home appraisal will likely be one of the key steps between signing the contract and closing the deal. Here’s what every homebuyer should know about this important process.
What Is an Appraisal?
An appraisal is a professional opinion of a home’s market value. It helps lenders ensure that the purchase price aligns with the property’s true worth. A licensed or certified residential appraiser—an independent third party hired by the lender—conducts the appraisal. Their role is to provide an unbiased evaluation, not to represent the buyer or seller.
Is an Appraisal Required?
If you’re taking out a mortgage, your lender will typically require an appraisal to determine the loan-to-value (LTV) ratio, which reflects the percentage of the home’s price you’ll be borrowing. Lenders generally prefer LTV ratios of 80% or lower to reduce financial risk.
If you’re paying cash, an appraisal isn’t mandatory, but it can still help you avoid overpaying. In competitive markets, some buyers may waive the appraisal requirement to make their offers more appealing to sellers.
What Do Appraisers Look At?
Appraisers evaluate various aspects of the property, including its location, size, condition, and recent upgrades. They compare the home to similar recently sold properties, known as “comparables,” often using Multiple Listing Services (MLS) databases. This data-driven approach helps ensure an accurate and evidence-based valuation.
Are Appraisals Done In Person?
Appraisals often involve an in-person property visit, but alternatives like hybrid or desktop appraisals are also common. In these cases, appraisers gather data remotely and consult reliable third-party sources familiar with the home and its neighborhood.
Can My Agent Communicate With the Appraiser?
Yes, real estate agents can communicate with appraisers and share relevant property details. However, influencing an appraiser through coercion, bribery, or intimidation is illegal and unethical. Appraisers must maintain confidentiality and provide an unbiased evaluation.
What Happens If the Appraisal Differs From the Purchase Price?
If the appraised value is lower than the purchase price, your lender might limit the amount you can borrow. Including an appraisal contingency in your purchase agreement can protect you by allowing renegotiation or withdrawal from the sale if the values don’t match.
Will I Receive a Copy of the Appraisal?
Yes. Under the Federal Equal Credit Opportunity Act, lenders must provide a free copy of the appraisal and any other written valuations after completion. However, if the lender waives the appraisal requirement, they are not obligated to provide a valuation report.
Can I Request a Reconsideration of the Appraisal?
If you believe key property details were overlooked, you can request a Reconsideration of Value (ROV) through your lender. Your real estate agent can assist in gathering supporting evidence for the request.
If you suspect the appraisal was inaccurate or biased, you can file a complaint with your state or federal regulatory agencies via the Appraisal Subcommittee’s National Hotline or a local fair housing organization.
Understanding the appraisal process helps you navigate your homebuying journey with confidence. When you know what to expect, you’re better prepared to address any challenges that arise along the way.
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