Do You Understand Appraisals?
Appraisals and How They Work
When selling or buying a home the estimated worth is an important number to consider. Everything about the transaction rests on the value of the property. But what do you really know about the appraisal and estimate process? And what do you need to know as a home buyer or seller? How accurate are estimates when it comes to real estate. Let’s take a closer look at the process for both parties and some of the information that’s been floating around the internet lately.
How Home Appraisals Work
Real estate – both land and property – are valued based on a variety of criteria. Because home sales don’t happen regularly, they need to be reevaluated each time they’re put on the market. Since each property is unique, a very specific set of criteria need to be considered when determining the value.
Real estate appraisals will take into account information such as the location of the home as well as upgrades and improvements made.
These reports will also reflect on the loan amounts for the mortgage as well as other financial situations, such as settling estates, big life changes, and taxes.
What It Means for the Buyer
The process of a home appraisal is meant to be unbiased. For example, the seller believes that their home is worth the price they establish based on their own purchase price and the money they’ve invested in home improvements over the year. But if that were the only criteria, the market would always lean toward the seller.
The appraisal process is conducted by a neutral party, which means the buyer has a better understanding of the value of the home based on a set of criteria used to value all homes in the area.
In many cases, the appraisal will come in at or above the negotiated price of the home. In these cases, the transaction will proceed as planned. But if the home is valued below the purchase price, there may be a need for renegotiation.
What It Means for the Seller
The biggest concern for sellers is when the appraisal comes back lower than the asking price. If the appraisal is correct, that means the price will need to be renegotiated. Lenders use the lower of the two values, whichever is less.
While a seller could hold out for a cash buyer, the likelihood of someone being in that position is slim and it may not happen for some time.
What about Zillow?
So why are home appraisals making the news now? In Chicago, homebuilders filed a lawsuit against the real estate aggregator site specifically in regards to their Zestimates.
“In Chicago, a Zestimate comes within 5.9% of the eventual sale price just over 44% of the time. Nationwide, Zillow Zestimates are within 5% of the actual sale price 53.9% of the time, within 10% of the sale price 75.6% of the time and within 20% of the closing price 89.7% of the time, according to the company.” (Source)
These online estimates are not a good indicator of the value of a home, and yet many people are starting and ending their home search using this free tool.
So what can you do to be better informed as a home buyer? The first step is to meet with a lender to help you better understand your financial picture. Contact Zachery Adam and the team at GoPrime Mortgage, Inc. . to learn more today.