As a first-time homebuyer, you are likely excited that you have found your dream home. But, if the seller is asking for $350,000, how do you know if the asking price is equivalent to the home’s market value? That is what a home appraisal is for. Getting a home appraisal performed on the house you are planning to buy is an important and necessary step in the mortgage process.
What is a Home Appraisal?
A home appraisal is an estimate of the value of the property you want to purchase. In other words, an appraisal is a way for lenders to figure out if the house you are buying is worth the amount of money you have already agreed to pay, based on the home’s fair market value.
Lenders determine the value of the home based on several factors. Some of which could include location, structural conditions, and the number of bedrooms and bathrooms included in the home. However, keep in mind that curb appeal of the home, such as the lawn or decor, does not factor into the appraisal. The estimated value of the home will determine how much a lender is willing to give you to buy that particular property.
Lenders always require a home appraisal before they’ll issue a mortgage because they want to protect their investments. A home appraisal also protects the bank from getting stuck with property that’s worth less than they’ve invested. And more importantly for you, it will protect you from spending more money than what the home is actually worth.
What is the Process of a Home Appraisal?
The first thing to know is that you will have to pay for the appraisal and will have to arrange for it to be done, even though an appraisal is technically meant to protect the lender. As of 2018, the average cost for an appraisal is between $400 to $500. This is only an estimate, as it can also depend on the home’s property type and its location. As you can guess, the more expensive the home, the more money you will have to dish out for an appraisal. The entire process can take up to as little as three days or as long as a week.
Dealing With a Low Appraisal
If the appraisal value turns out to be low, you should consider that as a potential red flag. You may be paying too much for the home’s overall value. If this is the case, there are still some options if the appraisal is lower than you want it to be.
The first thing you should do is check if your offer contract includes a contingency, which requires the property to be worth the selling price or higher. So, if there is a contingency it means that you can walk away from the offer without penalty to you. If the contract does not have this, you could also try to negotiate with the seller to lower the price. Lastly, you can always dispute the appraisal.