There’s a lot of paperwork involved when you buy a house. It usually starts out with a mortgage application and prequalifying to see how much you can spend on a new home. Then there’s the contract once you find the right house for you and your family. By the closing, many buyers feel overwhelmed by the paperwork and as if they’re signing their life away. That's perfectly normal, as buying a home is a complex process.
During the process, one of the items you may hear about is the appraisal. Many ask why an appraisal is needed, since the home is already priced to sell. But an appraisal is done during the home buying process to confirm the value of the house and property.
Don’t get the appraisal confused with the home inspection. You need both and here’s why.
Usually your contract will contain a stipulation for a home inspection. That means the purchaser will have a professional home inspector come in and assess the home within a certain time period.
During the inspection a home inspector is looking at the condition of the home. Do the electrical outlets work? Is it wired to code? What about the appliances that will be left to the purchaser? Are they in good working condition? Does the HVAC work or is it likely to need replacing in a few years? What about the roof? Is there water damage anywhere in the home? Did the previous owners maintain the house properly? And more. Based on his or her professional observations, the inspector will complete a report and any findings in that report can be further negotiated between the buyer and the seller.
In the case of an inspection, it is usually up to the purchaser to hire an inspector and be an active participant in the inspection process, since it can be a determining factor as to whether the contract will be viable or not.
In most cases the purchase price is set by the Realtor or homeowner, depending on who is handling the sale, and it’s usually based on comparable houses in the area or neighborhood. But the truth is, most people think their home is worth more than it actually is. And there are drawbacks in pricing your house too high. First of all, it’s unlikely to sell. And second, the appraisal could come in below the asking price.
While a professional appraiser is also going to look at comparable houses in the area as well, he or she is going to take a more thorough look at the house, the square footage, amenities, and more. The appraiser will also complete a report indicating an appraised value of the home.
In most cases neither the seller nor the purchaser will be involved in the appraisal. In fact, they may not even know when the appraisal is taking place.
The appraisal is important because it confirms the value of the home by an unbiased professional based only on the facts, not emotion. It is part of the closing documents and confirms to the lender that it’s a sound lending transaction, and the amount of money lended on the home is secured by the value of the house. The appraisal becomes part of the closing documents and is paid for through closing costs. Payment of closing costs is usually negotiated between the buyer and the seller.
Through June 30, 2020, CDC Federal Credit Union is offering a free appraisal (valued at $435) with a mortgage loan closing. If you have any questions about an appraisal or mortgage loan, call us or click here to visit us online. We’ll be glad to help.