Most lenders require a home appraisal as part of the approval process for a buyer’s home loan. Appraisals are not a science and not all home appraisals, are created equal.Four Facts You Should Know About Home Appraisals
1. Appraisal requirements are different depending on the type of loan.
Properties have to meet certain “habitability” criteria as part of a lender’s requirements. For instance, the requirements for a VA loan appraisal vary from the requirements for those of a conventional loan.
2. Your designer paint or luxury landscaping may not mean much to an appraiser.
You may spend $30,000 putting in lush landscaping. However, that is considered a home update or improvement. Home updates do not necessarily guarantee a dollar-for-dollar return on your investment. Some updates may make your home more marketable, yet not increase the dollar value of your property.
3. Lenders want to know if the home is worth your purchase price.
The appraisal assures the lender that the property meets its lending requirements. It is also appraised to make sure that the property is worth the amount of money the bank will be lending. In the event of default, the bank does not want to be stuck with a loan on a property that is worth less than the loan amount.
4. You can still buy a home that did not appraise for the purchase price.
A low appraisal does not mean that your deal is dead. It does mean that you as a buyer will have to increase your down payment to cover the deficit between the appraised value and the purchase price. Unless you are buying a novelty property or have unique circumstances that make the home more valuable to you, I would not advise a client to overpay for a property.
Appraisals are for the protection of the lender and the buyer. Your real estate professional will help guide you through the appraisal process.