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How to Do It: Inside the mysteries of the home appraisal — and why it matters

Magnifying Glass on A Blue HouseHome appraisals play an integral part in the home buying and selling process. They ensure that buyers are not overpaying for a property and they help sellers get a fair price for their homes. At Briggs Freeman Sotheby’s International Realty, our agents have helped their clients on both sides of the buy-and-sell equation for thousands of transactions. As a pivotal step in the closing process, it is important for buyers and sellers to understand home appraisals.

 

What exactly is a home appraisal?

A home appraisal can be defined as an unbiased estimate of the value of a property. To come up with that estimation of the home’s value, an appraiser, usually hired by the buyer’s lender, will visit the property, study it and compare it to similar homes that have recently sold in the area. The appraiser considers the condition of the property, any recent upgrades or renovations and any other factors that might affect the home’s value.

 

Assessed value vs. market value

There is a major distinction between the assessed value of a home and its market value. The assessed value is what the county believes a property is worth, for tax purposes. In Texas, a new property value assessment is carried out on January 1 each year, based on county data surrounding sales of comparable properties. Various exemptions and caps can lower the taxable value of homes, and there are safeguards in place that prevent counties from capitalizing on a potential windfall of revenue. Furthermore, the county’s tax rate is adjusted annually to generate sufficient revenue to pay for local services. State law dictates that voters must approve any tax rate that would increase revenues in excess of 3.5%.

 

For buyers, sellers and lenders, market value is used to determine the listing price. Our agents determine market value using factors including square footage, the number of bedrooms, lot size, amenities, curb appeal, overall condition, the school district and the proximity to neighborhood conveniences. These criteria will be combined with local data showing the final sale price of comparable homes. A buyer’s or seller’s market will also impact a sale price recommendation. Hitting the sweet spot to maximize value for sellers while attracting buyers is a cornerstone of our agents’ expertise.

 

Home Inspector Looking at WindowsWhy does the sale price matter?

Beyond attracting buyers and obtaining the highest price for a seller, the final negotiated sale price becomes an extremely important consideration during the closing process. That’s when the home-appraisal process occurs. It can influence a buyer’s financing arrangements and potentially nix the deal if the agreed sale price doesn’t align with the lender’s home appraisal. The April 2022 Realtors Confidence Index Survey shows that appraisal issues caused a delay for 21 percent of contracts and terminated 12 percent of contracts. Closing periods generally take up to 60 days, so that leaves little room for renegotiation over the contract price.

 

Who does the home appraisal?

Lenders will appoint a third-party appraiser to ensure a neutral evaluation. The lender needs to ensure that the loan does not exceed the house value should they need to foreclose and recover their investment. The Texas Appraiser Licensing and Certification Board (TALCB) strictly regulates home appraisers. Even if you can’t choose the home appraiser, you can check their profiles on the TALCB website.

 

How does a home appraisal work?

During the closing period, the appraiser will visit the home and consider a wide range of criteria to assess the value. Most appraisals are done using the Uniform Residential Appraisal Report (URAR). This comprehensive form covers similar items to the initial market value assessment. By no means is this an exhaustive list, but an appraiser will:

 

• Photograph the interior and exterior

• Measure the square footage and lot size

• Document the number of bedrooms; the presence and size of a garage; any recent improvements; the home’s age; its construction quality; and its foundation condition

• Take into account the desirability of the location, based on nearby services and amenities

• Research recent sales of comparable properties and note any differences that would impact value

 

How long does a home appraisal take — and is it expensive?

The appraisal will only require a few hours at the home. After that, additional research to gather relevant data may take several days. The final report should be produced within approximately 7 to 10 days and provided to the lender and the buyer. The homebuyer is responsible for the cost of this report, which usually ranges from $300 to $600, depending on the size of the home.

 

Potential outcomes

If everything goes smoothly, the appraised value will closely match the final price and mortgage size from the lender. If the appraised value is higher, the buyer is in an ideal position, with an immediate increase in equity. However, if the value is lower, a buyer may wish to renegotiate the price. The seller may accept a reduction if it’s not an extreme difference. However, they could also refuse further negotiation, leaving the buyer to decide if they have additional financial resources that would close the deal. That decision needs to be considered carefully, since emotions can sometimes trump what’s best for the long run. An agent will help guide this process.

 

Why home appraisals matter

The home appraisal is one of the most important components of buying and selling a home, as it helps you make informed decisions that are right for you and your family. Buying a home is an exciting proposition, but it must be approached prudently. The home appraisal helps make that possible and protects everyone in the transaction. At Briggs Freeman Sotheby’s International Realty, our agents can help you make wise choices now to serve you well in your future as a homeowner.

 

BONUS TIPS:

We have a lot more insider info for you, here, in our exclusive 'How to Do It' blog series.

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