There is a lot of money at stake with real estate transactions, and your lender is going to want to make sure that they are not shelling out too much cash for the property you are interested in buying. They will have the property professionally evaluated and valued in order to know how much money they can safely lend. If you are paying cash for your next home, an appraisal is your estimate of the property’s value and it serves as a good barometer, in most cases, as to whether or not you are paying too much money.
An appraisal takes into account a lot of different items when evaluating the value of a home. Some of the more important considerations include the condition of the premises, the health of the local economy and real estate market, the stability of the community as well as the price that comparable homes in the area are being bought and sold for. The appraiser will use multiple sources of statistical data, their own experience and their own opinion when generating a value. While their approach is supposed to be objective and without bias, there is always a certain degree of interpretation and perception that is included in the process.
Sometimes if an appraiser is not happy with the condition of the exterior of the property, they may assign a lower value. If the local market is starting to recover from a downturn, they may be hesitant to assign it a higher value even if recent figures show that community values are on the increase. They may base their final total on accessibility, the layout of a home, the size of a kitchen or one of a million other factors that influence the marketability of a particular property.
If the appraisal comes in much lower than the asking price, then your lender will not lend you more than the property is worth. This can be troublesome if the owner does not want to budge on the offer or if you do not have the cash to cover the bigger down payment. If the price comes in higher than the asking price, then you may benefit, but the owner may rescind the offer and ask for more money. The higher price can also impact your property taxes if you do decide to go forward with the purchase.
Most lenders and Realtors have a good idea of what a home in a particular area is worth, and the majority of appraisals are nothing more than a formality. But, they are designed to produce a fair and accurate measure of a property in order to protect all of the parties involved. They can keep you from paying too much and prevent the lender from risking too much money, which is something that they are very keen on avoiding. Let the appraisal process work on your behalf and use it to help you find the best home for your budget, needs and overall expectations.