This article provides readers with insight into the appraisal process when purchasing or refinancing a home to clarify misconceptions they may have. There are many myths and misconceptions that you may have come across concerning home appraisals, and perhaps they have taken a toll on you when it comes to this critical process. But the good news is that information can do the trick – it will explain what home appraisal is, why it is essential, and how to get the best of it. In this article below, we will demystify seven home appraisal myths to help you stop stressing and start strategizing.
Myth #1:
Instead, an appraiser will assess the home’s value to arrive at the proper loan-to-value ratio for the loan. Below are some of the biggest myths most people have about home appraisals. It is crucial to state that the appraiser, though, offers a professional opinion of value and does not independently decide the worth of the home.
The appraiser just compares the home to other similar recently sold homes in the area also known as “comparable properties” or “comps” and this enables the appraiser to approximate what buyers in the market for a house like this have been willing to pay in the recent past though the market dictates the final price.
Myth #2:
Low appraisal can be defined as a process of determining that a particular asset is worth much less than what the owner thinks it deserves. There are some legitimate concerns when it comes to low appraisal, such as losing their bid to purchase a home or refinance.
However, there are usually possibilities to restore the relationship and keep the deal on track. A common characteristic is that sellers may agree to reduce the price to match the value determined by the appraiser. Suppose the buyer still thinks that the house is worth the initially agreed price, but the appraisal process indicates otherwise. In that case, the buyers can determine the difference between the two in cash.
Myth #3:
Another methodological issue is that appraisers tend to focus solely on two factors, namely size and rooms. Comparatively, the habitable square footage and the number of bedrooms and bathrooms play the most significant role for appraisals. However, appraisers do not look at a home through the same lens that the borrowers do while appraising its value.
Other factors also affect the appraisal value; these include the location of the property, size of the lot, the property’s age and condition, views, construction quality, renovations, sales of similar properties in the same area, and trends in the real estate market. Sometimes it concerns more trivial aspects such as having a third bathroom, an updated kitchen, or a swimming pool, which can lead to higher appraisal.
Myth #4:
In some cases, the appraisers are allowed to visit the home only once in estimating the house’s value. Television has shown appraisers as abruptly inspecting a home in less than five to ten minutes of the first tour. Professional and efficient appraisers are disciplined to ensure they’ve gone through all the property.
They take photographs not only inside and outside the building but also at various positions. Many do so to ensure they get some details or matters right again before proceeding elsewhere for instance, to a workplace. Appraisers also dedicate a considerable amount of time to collect data on comparable sales, to perform calculations, to verify the data that has been collected, and to write the detailed appraisal report.
Myth #5:
In this case, appraisers have a financial stake in the deal, and they will have a vested interest in ensuring that the price of the property is set at the correct market value. Some people are delusional into thinking that appraisers stand to gain financially from coming up with a particular value conclusion maybe to support or to doom a transaction.
The guidelines of business ethics are strictly followed by the professional appraisers and the appraisal industry legislation also does not allow appraisers to have any financial interest in the application of their appraisal services. Lenders also select and appoint the appraisers in a random manner with no control over the number of valuation.
Myth #6:
There is something to be said about an appraisal set in stone. Real estate prices are always on the move to change depending on the market forces around the world. An appraisal is just a snapshot of a home’s worth and may not capture its actual market value.
The same house that is valued at one particular amount may be valued at an entirely different amount just a few months down the line. It is also important to note that no two appraisers will appraise an amount that will be the same as the other, as well as homebuyers will not agree on a price to pay for the home.
Myth #7:
Here, it is argued that appraisals are a waste of money because of the effort, time and resources that are used up in the process. For this reason, some people believe that appraisals are just negative aspects that cost organizations a lot of money while causing stress.
However, appraisals play fundamental risk management roles for both the lenders and buyers in the market. It serves to protect the lenders by ensuring that there is adequate security to back the advances made to the borrowers. They also protect buyers from making wrong decisions and opening themselves up for being upside down on their loans immediately.