An appraisal provides valuable information for the buyer and the seller, but the appraiser’s primary mission is to protect the lender. Lenders don’t want to own overpriced property and that’s why the appraisal takes place before the lender grants final approval of the buyer’s loan.
The Appraisal Process
Appraisers use a variety of factors in their decision making. They weigh the location of the home, its proximity to desirable schools and other public facilities, the size of the lot, the size and condition of the home itself and recent sales prices of comparable properties, among other factors. Appraisers aren’t interested in whether or not the house is clean but they do notice signs of neglect such as cracked walls, chipped paint, broken windows, torn carpets, damaging flooring and inoperable appliances.
Federal law requires states to establish minimum standards and licensing practices for real estate appraisers.
If the buyer is applying for a mortgage that will be insured by the Federal Housing Administration (FHA), the appraiser must survey the physical condition of the home and disclose potential problems to the buyer. No such obligation exists for non-FHA mortgages.
If a home receives an appraisal lower than the purchase price there are some ways the purchase can still go through. The seller can reduce the purchase price, the buyer could make a bigger downpayment, or if it’s a question of needed repairs, a separate escrow account can be set up to fund those repairs.
How Is An Appraisal Different From An Inspection?
An appraisal isn’t a substitute for a professional home inspection in fact they have some key differences. The appraiser formulates an opinion of the property’s value for the lender, while the inspector educates the buyer about the condition of the home and its major components. The appraiser is primarily focused on the value of the home whereas the inspector keys in on the home’s condition with an eye toward both existing and potential future problems.
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