Scaredy Cat Real Estate: Home Appraisals – What You Need to Know

When using financing to purchase a property an appraisal will be performed. The appraisal lets you and the bank ensure the value of the property is in the ballpark of line the price you are purchasing it for.

The appraisal is something, we the buyer, generally pay for. It is paid at closing and will show up as a line item on your closing statement.

Cost of the Appraisal

Appraisals will cost anywhere from $350 to $650. The appraisal cost can vary based on your location and any additional services required.

Additional Services:

Survey

A property or land survey distinguishes the boundaries and corners of a parcel of land. This information is used to recognize ownership of a specific area of land.

When financing a property purchase the lender will require a land survey to be performed along with the appraisal.

This protects their interest and yours in case any issues arise from the survey that impacts the sale or value of the property.

For example – You are purchasing a single family home. However, the neighboring home has a fenced yard that the survey discovers intrudes the property line of the seller’s home by a foot.

That issue now impacts the sale of the property and needs to be resolved.

Elevation certificate

Exactly as it sounds, the elevation certificate documents the elevation of a property. This is needed when a property lies within an area FEMA (Federal Emergency Management Agency) has designated as a flood zone.

There are different grades of flood zones and the elevation certificate will list which one FEMA designated for the area. The certificate is needed to secure flood insurance, thus your lender will require it in order to finance the property.

This is a lesson I learned the hard way on a purchase. There was no way I’d assume it was in a flood zone as the other properties I owed in the area were not. Boy was I wrong, just because most of a town isn’t in a flood zone doesn’t mean all of it isn’t.

During underwriting the lender let me know I had to secure flood insurance. This was a cost I did not factor, thus did not plug into my property calculator when running the numbers.

Luckily, the insurance was only a few hundred dollars per year and did not knock the cash on cash return below my acceptable threshold. Watching a chunk of my monthly cash flow go poof wasn’t fun though.

Factors Used in the Appraisal

The two main factors used in the appraisal are the condition of the property and comparable sales.

Property Condition

The appraiser will analyze the condition of the property – this includes, but is not limited to:

Exterior (siding, roofing, foundation) Interior (windows, walls, ceiling, cabinets, etc.) Fixtures & Appliances (light fixtures, refrigerator, washer/dryer, etc.) They factor in any damage or defects to the above items in the price estimate.

Comparable Sales

Comparable sales are derived from the recent sales price of similar properties in the area.

Here are some guidelines to what create a comparable sale:

Proximity (1 mile for suburban, 5 miles for rural areas) At least 3 closed sales (within 6 months, but no more than a year) Also, the comparable homes used will be roughly the same size with square footage varying by a couple hundred feet or so.

Speaking of Comparable Sales…

Having your agent (or doing it yourself) deliver three good recent comps to the appraiser isn’t the worst idea. Doesn’t mean they will use it, but a packet of solid comps they can reference if they want isn’t the worst thing. Especially if the appraiser is new to the area or out of their normal operating radius a bit.

Light Appraisals Can Thwart Deals

The issue with an appraisal coming in light is the financing (and that you may be overpaying for the property). A lender is usually financing X amount of the purchase price. Let’s just say it’s 80% and the buyer is putting down 20%.

If the property is $200k and the appraisal comes in at $190k – the lender is only going to provide a $152K loan as opposed to the $160K. The means there is now a $8k shortfall, which either the buyer will need to bring to closing or will need to be negotiate down.

See how this can thwart deals?

Prepare as Best as Possible

Just as giving the appraiser a packet of good recent comps can only be beneficial, so is letting the seller know when the appraisal is so they can be sure to have the property showing in its best light.

Doing these little things is certainly better than having to challenge a low appraisal, which adds to the closing timeline, among other things.

In the end, be sure to buy right so you don’t over pay and have to worry about appraisal price. If you don’t know how then let’s do some strategy calls after you watch the video course.

Posted Using LeoFinance