Understanding how appraisals work will help you achieve a quick and profitable refinance or sale.
Lenders would usually advise sellers to get an appraisal. Appraisal is an opinion of the value of your home based how much comparable or similar homes in your area have been sold in recent months.
Here are five tips about the appraised value of your home.
- An appraisal is not an exact science
Appraisers evaluate your home’s value by giving their best opinion based on how the home’s features stack up compared to those of similar homes sold nearby in the past few months. This opinion varies depending on the factors that the appraiser will use. They may use a recent sale or a sale happened long ago. They may also use a totally different home or a similar home but too far away. The result may give you different values.
- Appraisals have different purposes
“If the appraisal is being used by a lender giving a loan on the home, the appraised value will be the lower of market value (what it would sell for on the open market today) and the price you paid for the house if you recently bought it.”
The appraisal, which is used to determine property taxes or insurance amount, may rely on other factors and arrive at different values. For example, an appraisal for a home loan will evaluate today’s market value while an appraisal for insurance calculates the cost to rebuild your home at today’s rates of building materials and labor. This normally results in two different figures.
Appraisals are also different from Competitive Market Analysis or CMA. In CMA, agents usually rely on market expertise to come up with an estimate on how much your home will sell for in a given time period. Your home’s selling price is different when sold in 30 days than its selling price in 120 days. Since real estate agents do not follow the rules that appraisers do, CMAs and appraisals vary on the same home.
- An appraisal is a snapshot
Appraised values depend on how the market performs. If home prices shift, the appraised values will follow. Your home can have the appraised value of $150,000 today but in two to three months, when you refinance or list it for sale, the appraised value could be higher or lower. Appraised values depend on how the market performs.
- Appraisals do not factor in your personal issues
Job loss or transfer can be a reason you need to sell you home immediately, which affects the amount of money you’ll accept to close the transaction within your timeframe. Unfortunately, an appraisal does not consider those personal factors.
- You can ask for a second opinion
Is your home appraisal too low? You can always request for a second appraisal performed by a different appraiser. Either you or the potential buyer (if they requested for it) will have to pay for the second appraisal. This may be worth it to avoid the sale from collapsing because of a faulty appraisal. On the other hand, the appraisal may be correct, and you can take this as a sign to adjust your home’s price or the size of the loan you’re financing.