Table of Contents
- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
What is a Home Appraisal?
A home appraisal is an unbiased and disinterested third-party opinion conducted by a licensed or certified professional.
The appraiser gets paid for his service of valuation of your home but has no interest in the outcome and it makes no difference to the appraiser whether you are able to refinance in the end or not.
The aim of a home appraisal is to protect the lender or the bank and ensuring that the borrower is not lent more money than the value of the home.
In case the property goes into foreclosure in the future for any reason, the lender should be able to resell the home and get the money back.
The appraiser visits your home and examines its dimensions, amenities and assesses the overall condition of the home, from inside as well as outside, and also takes photos of the garage, exteriors, and every interior room.
Then the appraiser also takes into consideration the records of similar properties recently sold in your area.
Based on these records and the home visit, the appraiser then arrives at an opinion of how much he thinks your property will sell for if it was put on sale.
The banks consider this appraisal value along with other information like your income, assets, and credit history to determine the amount it can lend you.
How does an Home Appraisal work?
The Federal Housing Administration’s (FHA) streamline refinances and the Veterans Administration’s (VA) Interest rate Reduction Refinance Loan are the two types of refinancing transactions that do not require appraisals.
How appraisers and lenders behave through the entire process of appraisal is dictated by regulations set by the federal government.
In order to prevent the possibility of lending based on inflated values of homes, the government tried to increase appraiser independence after the housing crisis.
The truth in Lending Act and the Dodd-Frank Act are some of the regulations that require the appraisals and evaluations to be independent, free from any outside influence and using established criteria.
Lenders are often worried that any interaction with the appraiser might be construed as a violation of law and an attempt to influence the appraiser’ opinion due to the fact that the federal appraiser independence requirements outline a very narrow scope of interactions that can be deemed as acceptable before the appraisal is completed.
Thus, lenders usually tread with caution in order to avoid any possibility of disciplinary action. The loan officers, brokers, or borrowers, none of these parties can select the appraiser.
Lenders often order a home appraisal through a third party known as an appraisal management company (AMC). Hiring an appraiser through an AMC is not a compulsion but is the common approach for appraiser independence.
However, many local and small lenders have direct referral relationships with small appraiser groups and may not hire appraisers through the AMC.
Sometimes the lender may also have an in-house independent department for appraisals.
The Appraisal Foundation, a professional organization, has issued the Uniform Standards of Professional Appraisal which although are not ‘law’ per se, yet still need to be followed by appraisers.
Who pays for Home Appraisals?
The fee for home appraisals varies from state to state, but the appraisers must charge a standard and reasonable fee for the region.
For an appraisal of a standard single-family home, you can expect to pay the lender a fee of $300 to $500.
As the appraiser has done his/her work, you will have to pay the appraisal fee regardless of the fact whether your loan was closed or no.
Though the fee may seem worth it if you are able to refinance in the end, if you cannot, it will seem like a total waste of money.
Homeowners, ever since the new regulations were set, cannot know the estimated appraisal value of the home to see if the home is going to be valued high enough for him/her to refinance due to the fact that the lenders cannot discuss a property’s value with the appraiser when assigning the job.
One option you have as a homeowner is to ask a real estate agent to carry out a comparative market analysis and give you printouts of recent comparable sales.
This is more likely to be a favor as the agent will not be making any money through commission through your refinance.
This is why you might want to ask the agent nicely.
Conclusion
An appraisal is a process of valuation of the property based on various factors like the condition of the home, the value of similar properties in the area, etc.
An appraisal may not always come out to be what you as a borrower hoped for and also have room for subjectivity and human errors.
You are required to pay the appraisal fee even if you do not get the refinance.
