Home Appraisals 101
After receiving numerous questions regarding appraisals from my recent newsletter, I wanted to share more about the purpose here.
During an appraisal, an appraiser will visit the home you are buying or the home you currently own. This professional’s goal is to determine how much the home is worth.
Appraisers consider several factors when determining a property’s value, including the number of bedrooms and bathrooms; the home’s size, age and style; and the neighborhood in which the home is located, with a desirable community boosting the home’s value.
Appraisers will also look at comparable home sales. These are recent sales of similar homes in the surrounding area. By considering how much money these homes brought in when they sold, appraisers can more accurately determine the current market value of the property they are appraising.
The appraisal matters when you are buying a home because your mortgage lender wants to make sure you are not paying more than what that home is worth. After you make an offer on a home, and the sellers accept that offer, your lender will send an appraiser to determine how much the property is currently worth.
What if the appraiser determines that the home is worth the same as or more than what you have agreed to pay? If that is the case the home sale can proceed. If the appraiser determines that the home is worth less than what you are paying, your real estate purchase might be in danger, because your mortgage lender won’t lend you more money than what the home is currently worth.
If a buyer and seller agree on a sale price of $600,000 but your appraiser determines that the home is only worth $560,000 your lender won’t loan you more than that $560,000. To make the sale work, either you’ll have to increase the offer by $40,000 in cash to make up the difference or the seller will have to lower the sale price from $600,000 to $540,000.
Maybe you want to refinance your existing mortgage to one with a lower interest rate or different term. Your lender will order an appraisal to determine the current value of your home. This is because most lenders want you to have at least 20% equity in your home before they’ll approve you for a refinance. Equity is the difference between what you owe on a mortgage and what your home is currently worth. If your home is worth $700,000 and you owe $500,000 on your mortgage, you have $200,000 of equity in your home.
The appraisal plays a key role in the world of residential real estate, whether you are buying a home, selling one or refinancing your mortgage.
To learn more or to sign up for a free newsletter, contact John McHugh, Senior Sales Associate with Coldwell Banker for over 20 years. [email protected], 978.902.5646.
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