A property’s market value is determined through mortgage appraisals and is an important procedure while processing a mortgage loan. It is mainly carried out by licensed real estate appraisers appointed by the mortgage lenders.
This mortgage process applies to either the borrower trying to buy a house or is considering refinancing. So, appraisers conduct in-depth market research by assessing several property details to determine the property’s current market value.
Normally, they visit the property in consideration to thoroughly examine the same, inside and out. This is an unavoidable process ordered by the lender when a borrower applies for a home loan.
The below information helps you understand how mortgage appraisals work:
The Need for Appraisal
A home appraisal is a certified opinion given by a licensed appraiser done through in-depth market research and by comparing similar properties recently sold in the neighbourhood. Based on the property analysis, a final judgment is made by the appraiser.
This important procedure will help mortgage lenders to help gauge the risk of making a mortgage loan to a borrower. If in any case, the borrower defaults, the property will serve as collateral and also for lenders to make certain the loan amount does not surpass actual property value.
Property Inspection and Appraisal
Both these processes are important and at the same time have different purposes.
In an inspection, it evaluates the property’s condition. The inspector walks through and checks the entire property structure (walls, ceilings, floors, windows, and doors). The mechanical and electrical systems, corresponding appliances, and plumbing is also inspected carefully. An objective report based on the inspection will be provided after the process which might also include recommendations for repairs.
An appraisal is an assessment to determine the right property value in line with the current market. Property condition and factors related to the local housing market is considered to determine how much the property is worth. No repair recommendations will be made by appraisers.
Cost of Mortgage Appraisal
The cost varies based on the type of mortgage loan availed by borrowers and typically costs about $300-400. Some appraisal costs can vary by the property’s location and size. The appraisal fee is part of a mortgage’s closing costs, which is why applicants pay or it, even though the mortgage lenders are the ones who order it.
Several details of the property will be considered in an appraisal to determine how much the property is worth. The property will be visited and examined by the appraiser after doing in-depth market research. Property factors considered in an appraisal are:
- Neighbourhood features
- Trends in the local housing market
- Recently sold prices of comparable properties in the area
- Size of plot and property
- Property age and design
- Material types used in interiors and exteriors
- Property condition
- Amenities, such as swimming pools, parks, other recreation, etc.
- Property improvements and renovations
The borrower is entitled to receive a free copy of the appraisal report at least three days before the loan closing date. Keeping it handy will help them check the accuracy of the report.
Report inaccuracies or issues with wrong property estimate values can be addressed to the lender, leading to a possibility in re-evaluation. Upon confirmation from the lender for a second appraisal, the borrowers will still have to pay for the same.
Also, a lower property value estimated through an appraisal can be used by the buyer for lower price negotiation with the seller.
The above explanation shows how the process of mortgage appraisals are carried out in the mortgage and real estate industry.