What a home valuation is based on: Tips for home valuation

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Home valuations are an important part of most real estate transactions – and it doesn’t matter whether you plan to sell your home or buy one first. In any case, at some point you will come across a home valuation. And given the importance of the home appraisal process, know what to expect in advance.

In this article, we’re going to discuss the importance of home valuation as well as tips to make sure your home is ahead of the curve throughout the process. Note that a home appraisal and a home inspection are not the same thing. With that in mind, let’s take a detailed look at what you need to know about property valuations.

Understand a home valuation

A home appraisal is carried out by a professional appraiser who thoroughly examines the property to determine its true value. It is noteworthy that the estimated value does not always correspond to the actual list price. The appraiser, in turn, creates a report of everything he finds – both good and bad – to determine the estimated value of a home.

When a buyer borrows money to cover the cost of buying the home, the lender they choose will commission the valuation of the property. The valuation ensures that the lender is not lending more money than the actual property is worth. Typically, home buyers include a wording in a real estate contract that a house must be valued at least at the purchase price. However, in hot real estate markets, some buyers may choose not to include valuation language in the contract in hopes of making their offering more attractive to the seller. Removing real estate allotments is not uncommon when there is an abundance of bidding wars going on.

What an appraiser takes into account

Here are some of the most important things a real estate appraiser will consider:

  • Location
  • Indoor and outdoor conditions
  • External additions such as outbuildings, swimming pools, additional landscaping, etc.
  • Square footage
  • Number of bedrooms and bathrooms
  • Additional amenities such as central air conditioning, fireplaces, architectural details or a high-end kitchen
  • Observable problems such as water ingress or glaring housing defects
  • Any functional obsolescence

The importance of home reviews

Typically, lenders lend the lower of the appraisal or purchase price. For example, if you lose 10%, you will have to raise $ 50,000 if the house is valued at $ 500,000. Alternatively, if the valuation is $ 480,000, the lender will only grant a loan based on the valuation of $ 480,000. In this scenario, the lender is only willing to borrow $ 432,000, which is 90% of the appraised value. For the transaction to proceed, the seller would either have to reduce the purchase price or the buyer would have to provide an additional $ 18,000. Since the value is below the purchase price, the difference must essentially be made up somewhere.

Lenders must also adhere to the loan-to-value ratio. Hence, they use their estimated value as the actual value of your home, which determines the amount of loan that you can get. Then, if they find that the property you are interested in is lower than your advertised price, your loan amount will be reduced to reflect the difference.

In hot real estate markets, it is not uncommon for houses not to be valued at the agreed purchase price. If so, you can ask the seller to lower the cost to reflect the new appraisal, but many sellers will likely shy away from doing so. Of course it will be a long way, but if you don’t ask, you won’t get it. And in a sellers’ market, the next buyer is usually just around the corner, waiting to pounce.

For example, suppose you asked the seller to consider a lower price and they refused, but you also don’t want to pay the difference out of your pocket. In this scenario, you can cancel the sales contract entirely with an appraisal – without losing your cash deposit.

Why Sellers Should Understand Home Reviews

Real estate appraisers judge a home on many factors to determine its fair property value. So if you know exactly what to look for, you can fix and update any issues with your property for the best possible value. Of course, the condition of your home plays a big role. So make sure you deal with any obvious issues that the reviewer points to and do whatever you can to ensure that the inside and outside look their best. Also, keep in mind that buyers are also doing research and essentially scrutinizing your property too. It is worth doing everything you can to achieve positive results.

Research your competition

To compare, compare homes with similar prices in the area as another home may have certain features that can help increase the value of your property to a more acceptable amount. For example, even small upgrades, like painting or replacing an old floor, can make a big difference.

Don’t forget the little things

Every home has minor aspects that can keep it from getting a good price – be it the walls that need a paint job or the hinges on the door that need some oil to stop the squeak. And while such things may seem small and not worthy of your time, a professional appraiser with an eye for such things can attest that they affect the overall value of your home.

Don’t overlook the outside

When trying to impress someone who walks into their property, a lot of people look at the walls and furniture they have in their home. But the external condition of the house is also important. Again, just as you did with the smaller details in your home, apply the same logic to the exterior of your home: if you have overgrown or unkempt landscaping, take the time to look into it. And if there are peeling moldings, do some touch up painting to make it presentable. Make sure your paths are clear and everything is well lit.

Consider the look of your home

Aside from the small things, you can also make major changes to your home to improve the appraisal. For example, consider repainting the walls, replacing bathroom tiles, or changing lighting fixtures. Ultimately, anything that looks outdated or out of place can be tweaked to make a better impression. However, do not go over budget as you make improvements. At some point, the money you spend may outweigh the potential increase in the review amount.

Clean the entire property

It might go without saying, but you will be surprised how many people fail to clean their homes before the appraiser arrives. It’s about making sure you make the best impression – and a pristine home helps. You don’t want a surveyor to find your home dirty or not well-maintained. Reviewers are people like the rest of us. You can adjust the rating downwards depending on the condition.

A home appraisal is an important step in most real estate transactions. Hence, both buyers and sellers should have a general understanding of how the process works. And by now, you’ve probably got a new perspective on what you need to know about property valuations.

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