You’ve heard that refinancing and shortening your loan term can save you thousands of dollars in the long-run. But, did you know that there are other ways to save money on your mortgage? Appealing your tax assessment (assuming your home’s value has gone down), recasting your mortgage and asking your lender to remove PMI and MIP are a few other ways you can also reduce your monthly mortgage payment.
The sad truth is few people really know how appraisals fit into the home buying process. That’s not a good thing. People need to understand what appraisals are, who does them, and why they’re required. And most importantly, a real estate appraisal inspection is NOT the same thing as a home inspection (when buying a home). A home inspection is much more in-depth and designed to find things wrong with a home, such as problems with the foundation, furnace or roof improperly installed, etc. An appraisal will take obvious defects into account, but not nearly as much as a home inspection.
First Things First – What’s a Real Estate Appraisal?
A real estate appraisal is the practice of developing an opinion of the value of property, or what is commonly called “market value.”
Appraisals can vary by state, but there are three main parts to a home appraisal:
- The inspection – a licensed appraiser comes to the property and inspects it to determine fair market value
- Comparables – after the inspection, the appraiser researches similar homes in your area and compares recent sales to determine market value.
- Final appraisal report – using the data gathered from the inspection and comparables research, your appraiser issues a final appraisal report
The Real Estate Appraisal Inspection
The Top 10 Things You Need To Know About A Real Estate Appraisal Inspection are:
- The appraiser confirms that the property exists and is in livable condition.
- The appraiser confirms reported square footage.
- The appraiser checks all rooms for obvious damage that could affect value.
- The appraiser will verify reported upgrades (you’ll provide that information prior to the inspection).
- The appraiser will note all permanent features to a home that could affect value. Like the built-in appliances in the kitchen. Removable items are not included in appraised value.
- The appraiser will check the basement for updates and finishing, but NEVER include it in sq. footage. Updated basements can increase a property’s value, but they can’t be included in sq. footage.
- The appraiser verifies there is a working furnace and air. But remember, they don’t test a furnace the way a home inspector would. They just confirm it exists and appears to work.
- The appraisal verifies the number of bedrooms. To be counted as a bedroom, the room must have closets and windows. Keep in mind: DON’T start a room project you don’t plan on finishing before the inspection. It may hurt your value.
- The appraiser checks the front and back of the house and measures all land area on the property
- Finally, remember: What you spend on updates may or may not raise the value of your home a by the same amount. Don’t expect that $25,000 kitchen to raise the value of your home $25,000. It may or may not.
One last tidbit – don’t worry about how clean your house is. Appraisers don’t take that into consideration. But do cover over cracks in walls or finish any minor retouching you may have started. Make your home look as finished and as nice as possible; don’t leave any unfinished painting or renovation jobs in limbo. Get those done and you’ll do your appraisal a favor.
Understanding Real Estate Appraisals
Real estate appraisals are one of the most misunderstood parts of the home buying or refinancing processes. By understanding appraisals and being prepared for the real estate appraisal inspection, you’ll know how to maximize your home’s appraised value. In today’s real estate market, that’s good information to know. And may be the difference between qualifying for a mortgage and not qualifying.