By definition appraisals are "objective estimation[s] of the market value of a property" and this term has become a very familiar one in households across America. Whether someone is eyeing a house for sale or just curious about how much their home is worth, an appraisal is what gives the final value estimate. The key to the reliability and importance of appraisals is in the fact that they are objective. We can do our own "guesses" and "estimations" of our property value, or even hire a Realtor to research similar sales in the area, but more often than not our perspectives turn out to be a bit skewed. Almost all sellers think their property is worth more than it really is, and Realtors tend to have a vested interest in listing the property higher rather than lower.
Surprisingly, even online resources such as Zillow and Movoto has shown that their internet estimates are oftentimes inaccurate. If online resources, Realtors, and we cannot determine the value of our own properties then who can? An appraiser -- an objective, licensed individual who has been trained to find the value of properties correctly. Here are just a few reasons why appraisals are obtained:
To buy a house or property. It has become mortgage industry standard for lenders to require a completed appraisa when a buyer is purchasing a property. Whether the buyer is borrowing 50% of the purchase price or 100% of the purchase price, lenders always need to know the objective market value of the property in order to proteect their mortgage investment. Without an appraisal the lender is basically in the dark regarding the true value of a property; they could potentially lend $350,000 on a property that is truly only worth $100,000. In which case if the property were to go into foreclosure it is a guaranteed loss for the bank. Appraisals are valid for a period of roughly 3-6 months. Generally any appraisal over 3 months old will have to be redone if another loan transaction needs to be done on the property. But appraisals are not just performed for the sake of the lender. It can also be used by the buyer to make sure he or she is not paying too much for the property.
To refinance a house or property. Whether the owner is borrowering 50% of the market value of the property or 90% of the market value, lenders need to know the objective market value of the property in order to protect their mortgage investment -- the same reasoning behind why lenders require appraisals when buying a house or property. "Without an appraisal the lender is basically in the dark regarding the true value of a property; they could potentially lend $350,000 on a property that is truly only worth $100,000. In which case if the property were to go into foreclosure it is a guaranteed loss for the bank. Appraisals are valid for a period of roughly 3-6 months. Generally any appraisal over 3 months old will have to be redone if another loan transaction needs to be done on the property. But appraisals are not just performed for the sake of the lender. It can also be used by the buyer to make sure he or she is not paying too much for the property."
To sell a house or property. Obtaining an appraisal of a property for sale is all part of the pre-sale decision-making process. Before someone sells their home there are many considerations to think about -- one of the most important and usually the first question sellers have on mind is: "How much should I sell my property for?" An appraisal can help answer this question by objectively estimating the value of the property, giivng the seller a starting number to consider and the Realtor a starting number to list the home. In the case the property may benefit from a touch up, an appraiser can also guide the seller in the direction of how to increase his or her property value before listing the home. They can estimate how much the property value will increase if the kitchen is remodeled or if the house is given a fresh coat of paint.
To learn more about improving property values, read our article: "What to Do to increase Property Values."
To remove PMI (Private Mortgage Insurance). When first buying a property some individuals and families obtain mortgages with private mortgage insurance or PMI. This type of insurance is usually required when the buyer finances more than 80% of the purchase price in one single loan. Fortunately recently in 2007 the federal government has changed the law and has now allowed PMI monthly payments to be tax deductible as well. However, it is still an additional monthly payment. Oftentimes what happens is once the owner gets accustomed to paying the monthly mortgage plus PMI payment, the additional PMI payment is soon forgotten. With appreciating property values and the paying down of the loan principal over time, PMI eventually becomes unnecessary as the loan begins to dip under 80% of the property's appraised value. In order to remove PMI lenders require an appraisal to prove the value of the property is high enough to make the loan amount below 80% of the property's market value.
To learn more about PMI, read our article: "Everything You Want to Know About Private Mortgage Insurance."
Liquidation, Estate Planning, Divorce. The key here is again the objectivity of the appraisals and appraisers. Whether it is an unfortunate loss of a loved one, or the sad dissolution of estates, it can be made easier by obtaining an appraisal to determine the true value of the property at hand. This could easily save all those involved much headache and disappointment.
Curiosity. We cannot forget one of the contributing factors to any and all of the reasons above. It is natural for a homeowner or property owner to want to know whether their property has appreciatead or depreciated -- after all, it is their investment. However, appraisals cost money. For single family homes it can cost anywhere from $300-450 per apparaisal. So in cases of curiosity, online resources are available such as Zillow, Trulia, and Movoto. They offer free online estimates of your property's value. In case you do require the service of an appraiser and want an accurate estimation, visit our referrals page to view our network of trusted appraisers.
Appraisers are schooled and trained extensively in their line of work in order to provide consumers with objective, sound, and reliable reports of property values. Although it is possible to obtain a rough estimate of a property's value through online and real estate resources, the most efficient, the most accurate, and the most reliable method is still to hire the services of a trained appraiser.
