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.
Why the appraisal matters when you’re buying a home
When you are buying a home, 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, there are no problems and the home sale can proceed.
But 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.
Say you and the seller agree on a sale price of $300,000 but your appraiser determines that the home is only worth $280,000. Your lender won’t loan you more than that $280,000. To make the sale work, either you’ll have to come up with $20,000 in cash to make up the difference or the seller will have to lower the sale price from $300,000 to $280,000.
Why appraisals matter when you’re refinancing
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 $350,000 and you owe $250,000 on your mortgage, you have $100,000 of equity in your home.
To determine how much equity you have, your lender will need to know how much your home is currently worth. Again, this is where an appraiser comes in. This professional will let your lender know whether your home’s value is high enough that you meet the 20% equity threshold.
The appraisal, then, plays a key role in the world of residential real estate, whether you are buying a home, selling one or refinancing your mortgage.
Claudine Steinfurth
REALTOR®
(216) 409-4039
csteinfurt@aol.com
RE/MAX Above & Beyond
7570 Chippewa Road
Brecksville, OH 44141
