An appraisal report is a written report that is an independent opinion of the value of a home based on an appraiser’s inspection of the property. It specifies what a mortgage lender should be willing to loan for someone to purchase the property and why. A home appraisal protects both the borrower and mortgage lender by preventing overpaying for a house.
Appraisers judge how much the differences – plot, location, upgrades, amenities, square footage, etc. – between those properties and the home are worth. Ultimately, appraisers come up with a fair market value for a property.
Mortgage lenders usually require a home appraisal to put a value on the property and to ensure that the home is worth the purchase price or value, and can be sold to cover losses if a borrower defaults on their mortgage.
Professional appraisers inspect the home and compare it to recent sales of similar properties nearby.
Typically, a home appraisal report includes:
- Explanation of the valuation
- A brief overview of the local market’s trends
- Summary of the home’s characteristics
- Outwardly structural problems and defects
- Other considerations of the home or its neighborhood
- Overall metrics and trends of the surrounding community, zip code, or city
It’s important to recognize that home appraisers are not home inspectors. The price given in the appraisal is determined by several factors including: Recent sales of similar properties in the area, the current condition of the property, and the neighborhood’s impact on the future value.
In some cases, adjustments can be made to the appraisal. Adjustments are changes made to the value based on differences between the home being appraised and other recent sales. For example, if most homes in the area have pools and one doesn’t, the value will be adjusted by the expected added value of a pool. Another example is the addition of square footage to a property.
Sellers can ensure their homes have the most value by fixing things in need of repair and making any necessary repairs. By making small updates, they can squeeze more value out of the home. Although buyers don’t have input on an appraisal, it is still important to understand the process and the impact it has on their loan because it protects the borrower at the end of the day.
If you are buying or selling a home and have some questions about appraisals and what to expect, please give us a call at (760) 930-0569 and one of our loan consultants will be happy to discuss further.