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Lenders require home appraisal at market value


When should I get a property appraised?

An appraisal is a professional opinion of the value of a property. Value can be based on the cost to replace a property, the income a property generates, a property's market value or a combination of these.

You might want a replacement cost appraisal to make sure you have adequate insurance coverage to rebuild if your house burns down. But at the time you buy a house, you're primarily interested in an appraisal that's based on market value.

An appraisal completed by a professional appraiser is required by lenders before they'll approve your home loan. Although the replacement cost and income approaches to value are considered, it's primarily the market value of a property that will determine how much the lender will be willing to lend.

An appraiser arrives at an opinion of the market value by comparing the subject property with three others in the vicinity that have sold and closed within the last six months. The appraiser adds value for amenities the subject property has that the others don't. Value is subtracted if the property being appraised lacks amenities.

In some cases, the appraisal will also need to include information about similar properties that are currently being offered for sale and ones that have recently sold but aren't yet closed. In locations where property values have declined recently, lenders want to make sure that the value indicated by the sold properties isn't higher than the current list price of similar properties. In areas where values are increasing, the most recent information on sales that aren't yet closed may be necessary to justify a price that's higher than the closed sale information indicates.

In most cases, the appraisal is paid for by the borrower, usually in advance. The cost depends on the purchase price and location of the property. Generally, the higher the price of the house, the more expensive the appraisal. Although the buyer pays for the appraisal, it's ordered by the lender or the loan broker, not by the borrower.

FIRST-TIME TIP: Since appraisals can cost several hundred dollars, you may want to ask your loan agent to hold off having the appraisal done until the property has been thoroughly inspected to your satisfaction. This way if the house doesn't pass inspection scrutiny, you won't waste money appraising a property you won't buy.

This strategy requires careful planning because you want to make sure that the appraisal is done in a timely fashion so that you can meet your financing contingency deadline (usually 30 days from the time your offer is accepted by the seller). It can take weeks for a property appraisal to be completed, particularly if the real estate or refinance market is active.

THE CLOSING: Buyers purchasing a property for all cash, with no loan contingency, should make their offer conditioned upon the property appraising for the purchase price. In this case, you'll need to order the appraisal yourself.

Dian Hymer's column is syndicated through Inman News Features. Send questions and comments in care of Inman News Features, 5335 College Ave., No. 25, Oakland, Calif. 94618.

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