When you are on the lookout for a prospective house and you finally find the perfect one, you don’t immediately pounce on it. Common sense dictates that you inquire, inspect, appraise and finally initiate discussions with the seller of the property.
Home appraising is an important part of the whole real estate purchase process for it helps determine the real value of the house. It saves you from spending a fortune on regret with a small investment in caution. And for this, homebuyers usually appoint an expert appraiser who evaluates the value of the property and advises you accordingly. However, it is up to you to take his opinion or advice and take action. This article seeks to guide you on the importance of home appraisals and the importance of the process in the real estate transaction.
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Is the element of bias present in a home appraisal?
Property values of real estate fluctuate daily. Though there is a discernible price range, zeroing in on the real value of a property is a simple task.
- Home appraisers may be appointed by home loan or mortgage lenders or home buyers to determine the value of the prospective house.
- They appraise the market value of the house according to factors like location, estate prices prevailing in the city, condition of the house, features of the house, etc.
- These professionals are used to ensure there is no overestimation in prices or that home loan or mortgage lenders do not lend money greater than the property value determined. Their professional opinion is meant to be unbiased.
- However, there may be bias hidden in the opinions of these home appraisers to increase their remuneration in the form of commission or for the reason that a low appraisal would mean more work for less remuneration if the quantum of remuneration depends on the quantum of the property value advised by the home appraisers.
- Appraisers appointed by lenders to appraise the value of a property may also arrive at a value that favors the interests of the lenders.
Do appraisals usually come at the asking price of the seller?
Appraisers may be professionals employed by lenders or home buyers to determine the value of the prospective residence, but they are independent to act on their own.
- As such, their opinions and advice are usually devoid of favor towards their employer or principal.
- The value they appraise could very well be the same price that the seller fixes as his asking price, or it could be close to the market value of the property.
- It could also be greater and on occasions lower than the market value or asking price of the seller.
- Under conditions where the price appraised is lower than the asking price, the buyer may negotiate with the seller to lower the asking price to meet the appraised value.
Will lenders lend more than the appraised value?
Home appraisers employed by lenders conduct the appraisal on behalf of the lenders.
- They are tasked with arriving at a value that protects the interest of the lenders.
- An appraised value close to the market value allows the transaction to progress as planned. An appraised value below the market value ensures that the lenders do not overestimate the value of the property and disburse loan funds accordingly.
- However, it goes against the lender’s interests to lend more money than the appraised value. It increases the “risk” undertaken by it and may complicate the repayment of the loan amount.
- Lenders favor a conservative approach.
Can home appraisers be wrong?
The home appraisal process is all about assessing the real value of the residential property and as such arriving at an impartial independent conclusion. Home appraisers share their opinions or appraise the buyer or lender about their findings.
- Real estate prices keep fluctuating every day. Home appraisers need to determine a price range in which the property value of the property falls.
- As such, the opinions of these professionals are nothing but estimates that have been reached using several factors that are qualitative and quantitative by nature.
- Therefore, it is very much possible for home appraisers to errors and mistakes in appraising the value of the property.
- Home appraisals are also subject to the biases of home appraisers.
- Home appraisers may value houses at a value higher than the actual price for reaping higher returns for them.
- If home appraisers represent the interests of lenders or any other principal, they may weigh such interests and value a house to favor such interests.
How often do houses not get appraised for the asking price?
Several houses do not get appraised by prospective home buyers. Buying a house is an important financial decision that you take but some people take no initiative to get a house appraised other than inquiring around in the neighborhood, inspecting the house passively, and jumping into discussions with the buyer.
Lenders, on the other hand, undertake active home appraisals to assess the value of the property. This results in several appraisals being given in favour of the interests of the lenders and consequently, home loan funds are disbursed.
Buyers may find that home appraisal is a beneficial exercise that may reveal defects that are not visible on the face of the house or the transaction. A Home appraisal price lower than the asking price puts the buyer in a better bargaining position. Even if the home appraisal price is higher than the asking price, the buyer is not bound by the advice of the appraiser and neither is he under any pressure to reveal the asking price of the seller to the professional.
If you are not happy with the appraisal value, you should voice your concerns against such home appraisal in the very beginning. You can discuss the matter with appraisers themselves or with the lenders employing the professionals. If you feel the home appraisals skewed in the other party’s favour, then insist for another appraisal to be done by a neutral and impartial appraiser.
There are several certified real estate experts and companies that conduct home appraisals and provide reports that highlight their findings. A thorough search for the es at reasonable rates is advised if you want a good value for your house.
A home appraisal is an important part of the purchasing process of a residential property. Whether undertaken by self or through a professional, the exercise apprises the buyer of the value of the property and puts him/her in a better position to bargain with the seller. A home buyer cannot fly in blind and pitch a price to meet the asking price of a seller. They need to make informed decisions. A home appraisal may reveal defects that are not visible on the face of the house or the transaction. Therefore, before dealing with the seller, get a thorough home appraisal done to assess the value of your investment in the purchase of the significant immovable property.