When you are buying a home, a home appraisal report is always needed. The only time a house appraisal is not needed is when you’re doing a streamline refinance. The house appraisal report is not to be confused with a home inspection and is not done by a home inspector. A residential appraisal or house appraisal does not guarantee against house defects or possible issues that require a home inspector to see.
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What Is A House Appraisal Report?
A House Appraisal Report is a report done by real estate appraisers that determine the value of a home, compared to its neighboring homes. A real estate appraiser is usually assigned to a home by an appraisal management company.
An appraiser is a licensed and certified professional who determines the value of your home as objectively as possible through observation of the condition of the home. The number of bedrooms, square footage of each room, as well as the size of the lot of the home is all used to determine a value. This information is then used along-side comparable sales of other homes to determine if the price is accurate for similar properties in the same neighborhood.
As mentioned before, residential appraisal reports are not to replace home inspections. Home inspections are much more thorough, and can guarantee a home’s condition. Appraisal reports are all based off of observation. An appraiser will not move furniture, or stand on ladders to thoroughly inspect a home, as they are not licensed or insured to do so.
Why Are Appraisal Reports Needed?
The home appraisal process is necessary in determining whether the buyer is buying a home that is priced appropriately. The value of a home can determine immediately if a home will have positive or negative equity. For some loan programs, like USDA and FHA, if the home appraises lower than the base loan amount, then the sales price of the home will need to be re-negotiated.
Appraisal reports are also necessary in determining whether or not a home is in the condition to be purchased for some specific loan programs. For example, the USDA loan program has specific condition requirements for a home that is purchased using that loan program.
For USDA Loans, a home must satisfy the condition guidelines for the most recent HUD Handbook, which is a book of guidelines made from the United States Department of Housing and Urban Development (HUD). The home must pass these conditions in order for the mortgage lender to be able to approve the loan.
Similarly to USDA Loans, FHA loans have requirements that must be met before the loan can be approved and the home purchased. Both of these guidelines from FHA and USDA are to protect the buyer from buying a home that has less than sanitary conditions. And one of the best ways for an underwriter to see if the home fits that criteria is with an appraisal report.
For part 2, we’ll be discussing more about how value is determined, and what increases the value of a home in an appraiser’s eyes.
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