In the long run, there’s only one truly accurate way to know your home valuation. It’s however much a buyer wants to pay for it. After all, that’s why you’ve spent your time and energy on endless renovations and remodels.
But the long run isn’t always the most realistic factor. In fact, what you can expect in the long run can change every other month. And what you assume will be an accurate valuation of your home doesn’t always take into account critical factors. Property taxes. Historical sales. Proximity to nearby schools, offices and restaurants. And in Utah, that also means constantly changing neighborhood property values.
In fact, valuations can vary wildly. Even by using your own trusted appraiser, their word can sometimes have very little effect on your ultimate qualification for a loan.
What Should I Expect From A Home Appraisal?
Federal law requires buyers to use a home appraisal service provided by their lender when qualifying for a new or second loan. At the most, using an appraiser of your own choice can give you a reasonable ballpark estimate of what you can potentially expect. And while that can provide you with a reasonable foundation to work from, you may ultimately find the bank has a bottom line far different from your own.
The average national cost of a home appraisal has been estimated to be approximately $335. Which is just to see if you qualify for a second loan. Appraisers can use three methods in assigning your home valuation:
- A comparable approach: which looks at the history of sales in your neighborhood close proximity, and adjusts according to perceived differences with those homes.
- A cost replace method: which factors in necessary rebuilding costs
- Income capitalization: which is primarily reserved for investment properties, since the amount of income a home would generate is the main value factor.
A thorough appraisal will take into mind:
- An exact description of your home—including square footage, interior condition and any renovations made
- A listing of the most recent sales of comparable properties
- The scope of work conducted
- Any additional requirements from the lender as well as any federal or state housing commission.
How Does County Market Value Affect My Property Valuation?
Assessed value essentially determines your property taxes. It’s derived from the sale of comparable properties in your neighborhood; and it’s typically at a value much lower than the actual market value of your home.
The fair market value is also based on comparable sales in your neighborhood, but determines an estimated value. It also takes into consideration both the exterior and interior condition of your home, supply, historical demand, historical value and of course—location. It’s a general ballpark estimate which tells you what you might expect if you were to sell your home or obtain a new loan. It’s also the value most open for dispute by an appraiser.
The appraised value, however, is the ultimate dollar value of your home. It’s also what a bank is most interested in. Appraised value determines the loan-to-value ratio of your loan. If the LTV ratio is above 78%, private mortgage insurance is required; which in Utah means you’re ultimately paying an additional 0.5 to 1 percent of your loan on top of your monthly mortgage payments.
Banks don’t lend more money than what a home is worth. If the appraisal comes back lower than the asking price, the amount of a loan will be dictated by the appraised value—not the fair market value.
What Should I Look For From An Appraiser?
Your appraiser should be fully licensed and FHA approved, meeting the Uniform Standards of Professional Appraisal Practice. They should also have a working knowledge of the sales of comparable home valuations in the neighborhood both historically and currently and adhere to a policy of being able to provide an independent evaluation.
You might try to analyze sales history of properties in your neighborhood yourself, using sites like Trulia or Zillow. While that might satisfy your own curiosity, just remember. The appraiser is there to assist banks in judging what will ultimately be the approximate amount of your loan. They’re the final arbiters. And while you can dispute by submitting a reconsideration of value letter to your lender, their selected appraisers are trained professionals. Your own real estate knowledge may not be quite as accurate as theirs. And very rarely will banks accept a listing on a third party search site to be an accurate reflection of sales history.
But the good news is that for an immediate loan, you don’t always have to rely on a lender—or their appraiser. At GaryBuysHouses, we have a solution called our “Sell Now, Move Later” program. We’ll buy your home as is, and even arrange to sell it back to you at a later date. It’s quick. It’s painless. And it’s guaranteed.
If you’re expecting an appraisal process to work in your favor, you may find yourself mistaken. It doesn’t mean they won’t but it’s the bank who has the final say. And if you thought the valuation of your home was a simple process, you may want to think again. Home values can change so drastically that what seems like a seller’s market today will be a buyer’s one overnight. Just don’t get caught in the latter unaware.