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Are you curious to know about the value of your property? Then you need an appraisal! An appraiser is an authorized professional who will give you an estimate of your property’s worth. Whether you’re planning to sell your house, purchase a business, or get insurance for your collectibles, an appraisal is essential.

Appraisals are done for multiple reasons, including tax purposes while valuing charitable donations. Home appraisals assist in selling a house or property by helping banks and other lenders when they are sanctioning a loan.

What is an appraisal?

Appraisals are used in multiple types of transactions, including real estate. Suppose a home appraisal, for example, concludes the amount lower than the purchase price. In that case, mortgage lenders presumably refuse to fund the deal. Unless the expected buyer is willing and able to determine the difference between the appraised value and the moneylender’s financing offer, the transaction will not proceed.

Appraisals are furthermore done for tax purposes when specifying the worth of charitable donations for itemized deductions. Deductions can decrease the taxes you owe to the IRS by deducting the value of the contribution from your taxable income.

Appraisals could also be a helpful instrument in settling disputes between heirs to an estate by showing the value of the real estate or personal property to be split.

How is it done?

The appraiser usually uses different valuation methods to decide the suitable value of an entity or property. It will also compare the present market value of similar comparable properties or objects.

Types of Appraisals

There are different types of appraisals like home appraisals and for collectibles or antiques.

Home Appraisals

A home appraisal is required when buying and selling a home. It is also used when refinancing – when a loan or mortgage is reviewed and revised to present interest rates and recent terms. 

An appraisal decides the house value to assure that the price reflects the home’s condition, state, age, area, and other features like the number of living rooms, etc. Appraisals assist banks and lenders and prevent them from lending more money to the borrower than the house’s worth.

Suppose a default occurs, and the borrower will not be able to make the payments. In that case, the bank uses the appraisal as a valuation of the home. If the home is in foreclosure, the bank takes possession of the house. The bank will resell the home and regain the losses from issuing the mortgage loan.

When a bank loans for a mortgage, it gives the total amount of the house value to the seller on the day of sale. In simple words, the bank has run out of money and also has a promise to pay along with interest from the borrower. Thus, the appraisal is essential to the lending process because it helps the bank escape loss and ensures it doesn’t end up lending more than its recovery capacity if the borrower defaults.

A home appraisal is separate and different from a home inspection. A home inspection is done to check the house’s condition to find if there are construction issues, ventilation problems, or plumbing problems before the buyer closes the deal.

Collectibles or antiques

Professional appraisals also take place for collectibles or antiques. However, it’s advisable to have multiple valuations from an accredited professional for an item. Appraisers usually charge an hourly rate or a flat fee. 

A certified appraiser’s valuation will mostly be more impartial and fair than a local collectible shop. Even though owners could get a sense of the item’s value by referring to collectible magazines or online appraisal websites, you must remember that it’s online using photos and is not an official appraisal. These websites usually charge a fee (something like $10) to value the item. It will help you understand the worth before you proceed. If you are going to get an appraisal, try visiting the American Society of Appraisers; it’s a great place to find an accredited professional.

Appraisals and insurance

Some kinds of insurance policies need appraisals of goods insured. Insurance policies of homeowners and renters protect policyholders from the loss of personal property because of theft and damage. These blanket policies cover items under a preset limit. Appraisal of the home’s contents makes an inventory of the property and shows its value, ensuring a quick settlement if a claim is filed.

Suppose the value of specific items is more than the homeowners’ policy limit. In that case, the policyholder might wish to receive extra insurance that covers luxury items like jewelry or collectibles like art and antiques. Before issuing personal property insurance policies for premium high-end items, many premium insurance underwriters (a service provided by prominent financial institutions like banks, insurance companies, and investment houses in which they guarantee payment in case there is damage and also accept the financial risk for liability originating from the guarantee) demand applicants to have the item appraised. The appraisal makes a record of the item’s presence with its description. It also establishes the item’s actual value.

Some insurance contracts need an appraisal clause that indicates the owner agrees to get an appraisal from a mutually agreeable expert on the occasion of a dispute between the owner and the insurance company. Neutral appraisals would speed up the resolution of a settlement and prevent conflicts from intensifying into long and big-budget lawsuits.

Home appraisal process

The exact amount you pay for a home appraisal would depend on the location of the property and the time required to finish the appraisal. The process generally starts after a buyer comes up with an offer on a home. The seller agrees to that offer. The buyer’s mortgage lender or broker may request it on their behalf. Still, the buyer usually pays. Typically, a home appraisal for a single-family property will cost around $300 and $450, and appraisals for multi-family homes would be about $500.

The appraiser will visit the property when the appraisal takes place. The appraiser will perform a careful review of the interior and exterior of the home to specify the worth. They would take a few minutes or sometimes even a few hours to complete the process. It depends on the house and the methods of taking measurements and photos of the property by the appraiser. 

The appraiser will make a fair estimate of the home’s value. Now, the appraiser will compare other homes in the area. After reaching the estimates of different houses, the appraiser will develop an appraisal report that has the home’s perceived value.

A copy of the report goes to the buyer and the buyer’s mortgage lender. It may take a week or ten days to finish the report. The seller can also ask for a copy of the report.

Suppose a buyer disagrees with the report. In that case, the buyer can request a reconsideration from the lender or choose to spend for a second opinion.

Home appraisal cost

A home appraisal usually costs from $300 to $450. The price may increase for multi-family homes or properties bigger than the average size. The buyer usually is responsible for paying the appraisal fees when it is in order.

Home appraisal requirements

A home appraisal is most of the time for when you buy a home with a mortgage. The lenders use it to decide if the house is worth the money the buyer is requesting to borrow. A buyer might not require it if he/she buys using cash instead of a mortgage loan.

Both buyers and sellers can be present at the home after getting the approval of the appraiser. Buyers and sellers can also ask if their agents can attend it instead of them. However, only the appraiser is usually present, and buyers or sellers rarely turn up.

What if the cost is low?

If a home appraisal is lesser than the amount buyer had agreed to pay, there are several options they could choose from. You can:

Appraisal to refinance a mortgage

Lenders utilize appraisals to decide a home’s value for refinancing mortgages, just like how they do for purchase mortgages. However, there are some exceptions; you will not need it if:

You are opting for an FHA refinance loan.

If you hold a VA-backed loan, you will need an appraisal if you opt for a cash-out refinance loan.

According to the US Department of Housing and Urban Development, there is a partial waiver on appraisals from April 26, 2021, to April 26, 2022, due to the Covid-19 pandemic. 

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