You’ve found your dream home. The homeowners are asking $250,000, but is the home really worth that amount? That’s what the home appraisal determines.

The home appraisal is an important step in the financing approval process. Your lender wants to determine the actual value of the property before they decide how much they’re willing to give you to buy it. Therefore, your lender will require that the home is appraised by a certified, state-licensed property appraiser. The appraiser provides the lender with an expert opinion on the value of the property. (Note: Even though the home appraisal is a requirement of the lender, it’s still your responsibility to pay for it as part of your closing costs.)

The purpose of the appraisal is to protect the bank or financial institution from investing more in the home than it’s worth. And it also protects you from paying too much. For example, your $250,000 dream home may really only be worth $200,000. So why should you pay more?

Generally, there are two methods used for appraising a property:

• Sales Comparison Method – The appraiser compares the property you’re interested in purchasing against three to four similar homes that have sold in the area – often called comparables or comps. The appraiser will compare lot size, square footage of the finished and unfinished space in the home, age and style of the house as well as additional features like security systems, swimming pools and other upgrades.
• Cost Method – Generally, used on new properties, the appraiser estimates how much it will cost to replace the home if it were destroyed. Also, to determine the property value, the appraiser looks at the land value and depreciation.

During a home appraisal, the appraiser will inspect the property inside and out. The appraiser may also look at county records and recent listings on the real estate multiple listing service. Then the appraiser will prepare a report that details how the value was determined, information on the size and condition of the house, improvements that have been made, if there are any serious structural problems, information about the surrounding area and an evaluation of recent market trends in the area.

It’s important to note that a home appraisal isn’t the same thing as an inspection. You’ll still want to hire a home inspector to look for any potential problems with the house, so you don’t end up with a lot of costly repairs in the future.

Hopefully, you have a better understanding now about the appraisal process.

If you’re looking to purchase a new home or you want to refinance your current home, the experienced mortgage professionals at Grandview Lending can help. They will work with you to find a mortgage solution that fits your needs while making sure you understand every step during the mortgage process. Give them a call today at 317.255.0062 and let them help you get a home loan.

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