If
you are a typical home buyer, you expect to purchase your next home with a mortgage.
Your lender will order an appraisal. But what exactly does this appraisal
represent besides confirming the value of the home you are buying?
You will personally inspect the home you are
purchasing several times, and hire independent experts to give their professional opinion on the condition of the home.
However, your loan officer will likely never see
your home, nor will anyone from the lending institution. Instead, the lender
will rely on an independent assessment of value and marketability from their own expert, the appraiser. The appraiser will inspect the home, in some cases almost as if he were doing a second physical inspection,
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and determine the condition of the home. He will look at other homes in the neighborhood, their condition relative to the home
you are buying, and estimate the value of your home in relation to what he sees. He
will determine value based on recent sales. These are called neighborhood comparables,
and the underwriters will place great emphasis when reading the appraisal on these comparable homes. The appraiser must indicate whether home values are rising, remaining steady, or falling in this area. He will use more than one methods to determine a home’s value such as what it
would cost to rebuild the home today.
When a home is placed on the market to sell,
the asking price of the home should reflect appraisal values.
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Otherwise, even if a willing buyer is found
to purchase the home, the lender will not loan a sufficient amount of money for the buyer to purchase the property. The buyer typically will not make up the difference in cash, but will cancel the purchase unless
the seller lowers the accepted price. Even cash buyers often order appraisals
to protect their financial interests!
An estimated appraised value is possibly the most
important factor when setting the asking price a home. Even in this hot market,
a realistic sales price must be set in order to successfully complete the sale of a home.
There is nothing so frustrating as thinking that your home is sold and
then finding out it doesn't appraise for the agreed upon price!
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