Home inspection vs. Assessment | Quicken Loans



What is a real estate appraisal?

An appraisal is a process required for almost all mortgage loans that is used to determine the estimated market value of a home. By law, appraisals are performed by licensed third parties unrelated to a mortgage company. To determine value, an appraiser takes into account the location of the home, its condition, and the value of similar homes recently sold in the area. These are also known as comparables or comps. Assessors can collect information online, by walking around the house, or with a driving assessment.

After collecting and analyzing the comp data, an appraiser creates a final report of the home’s market value. This report helps lenders make a final decision on whether or not to approve a loan. The lender usually cannot lend more than 97% of the appraised value of the home. Therefore, if the valuation is lower than the bid price, you will have to pay the difference out of pocket, renegotiate with the seller, or forgo the deal. . If the appraisal comes back higher than the bid price, you will automatically have more equity in the home.

What is the real estate appraisal process?

The appraisal process includes walking through the house, finding comparables, and creating a final appraisal report. Typically, this process begins after accepting an offer. Since lenders are most at risk of losing if a home is priced incorrectly, they will usually order the appraisal. However, buyers usually foot the bill.

After your lender orders the appraisal, a neutral third party examines the interior and exterior of the home, analyzes comparables, and forms a professional opinion on the home’s market value. The evaluators present this information in a report to both the lender and the borrower. These reports follow the formats defined by The Uniform Standards for the Practice of Professional Assessment to maintain ethics. As long as the appraisal does not conflict with the contingencies of the offer, the lender will begin to finalize the terms of your loan. You will receive the closing documents and close your loan knowing you got a fair price!

When is an assessment required?

Most lenders require an appraisal before they can close your loan. However, there are rare conditions where an assessment may not be necessary.

In October 2019, federal regulators effectively changed the assessment threshold from $ 250,000 to $ 400,000.1 This does not mean that all home sales under $ 400,000 are exempt from appraisal. This new regulation does not apply to mortgages held or guaranteed by the Federal Housing Administration, Department of Housing and Urban Development, Department of Veterans Affairs, Fannie Mae or Freddie Mac. Essentially, this change affects private mortgages that are not federally guaranteed, and even those lenders can still choose to require appraisals. With about 70 percent of single-family homes funded by federally guaranteed mortgages and lenders looking to protect their financial interests, it’s more likely than not you’ll need an appraisal.2

Benefits of an assessment

Just because it’s mandatory doesn’t mean you can’t take advantage of this service. Here’s how an assessment will benefit you:

  • It helps you get approval for a mortgage loan.
  • This ensures that you are not paying more for the house than it is worth.
  • It provides a reason to lower the home’s selling price if the appraisal is low.
  • It ensures that you are paying the correct amount of property taxes.

What if the rating is low?

The fact that the appraisal is low can be stressful for both buyer and seller. Low valuations are not common, but can happen, especially in a sellers market. If there is not enough housing on the market to meet buyer demand, housing prices can skyrocket. Some buyers may even be willing to pay more than estimated prices to be competitive. There are a few things you can try as a seller to keep the deal from falling apart. if the rating is low.

  • Lower your asking price.
  • Ask the buyer to pay cash on the appraisal.
  • Challenge the assessment.
  • Request a second assessment.

As a buyer, low reviews can work in your favor. The seller may be willing to lower the asking price. This means you can leave with confidence knowing you’ve paid a fair price. However, the seller may be willing to suspend the sale in the hopes of receiving a better offer – or cash – later. Having a real estate agent who knows the market can help you make informed and competitive decisions during your transaction.


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