Appraisals play a key role in a real estate transaction. According to The Truth about Mortgage site, an appraisal is defined as a report that determines property value based on standard factors such as living space and age of the property. Mortgage Underwriters also reports that real estate sales in the neighborhood are also a big factor considered when determining the appraisal value. The information provided is important for a number of reasons.
Establishing Fair Market Value
When a buyer decides to seriously consider a home purchase and wants to make an offer, deeming a fair offer price is crucial before solidifying a serious offer. Professional Appraisers of Texas, Inc suggests, “With so many different numbers being discussed, a buyer needs to be able to count on an appraisal price as determined by an objective third party like the appraiser. Fortunately, a fair appraisal will protect buyers from paying too much for a home.”
Pricing tends to be sensitive and unique to every party’s agenda. Sellers tend to ask more than a home is worth for obvious reasons, arbitrarily arriving at asking prices that may or may not be close to a fair market price. Some of the least reliable ways sellers arrive at the price they will sell their home for include listing prices in the immediate area, word of mouth, and the price they paid plus the estimated value of improvements. None of these methods is a valid way to price a home.
Mortgage Approval
The lender depends heavily on the appraisal value to decide how much they will loan the home buyer. All lenders have strict guidelines they must follow when determining the maximum loan amount they can offer specific to a property and borrower. Most lenders’ underwriting guidelines restrict them to loaning up to a certain percentage of the appraised value of a home. For this reason, whether a particular real estate deal closes or not is largely dependent on the appraisal value.
Protecting a Buyer’s Investment
Every buyer should purchase a home with the idea that they might need to sell it some time in the near future. Promotions, transfers and other important family matters can make it imperative to sell a home quickly. If a buyer pays a fair market price, then it is more likely they can sell it quickly when they need to move.
Conclusion
Home buyers should use appraisal results to determine a fair price to pay. In the complicated real estate landscape, it makes sense to trust objective third party appraisals. Since a home is one of the largest expenditures the average person makes in a lifetime, paying a fair price for a home instead of overpaying is crucial for achieving financial health.
