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Home Financing 101

9 Most Common Reasons to Order a Property Appraisal

4 min read
House Blueprint
picture of author, Hometap TeamBy Hometap Team on August 17, 2020

A home appraisal is an objective, independent, and impartial assessment of a property’s real and current value, also referred to as the fair market value of the home or property. While the most common reasons for home appraisals tend to be related to home financing, such as selling, buying, or applying for a loan, there are many reasons why a property owner may want or need to request an appraisal.

1. Preparing to buy
When you’re buying a home, you’re usually the party on the hook for the appraisal unless you negotiated with your seller or lender to cover the cost (often with other closing fees). That’s because the home appraisal is meant for your lender. Your bank wants to offer you a mortgage that covers the cost of the home—not more.

2. Preparing to sell
Some homeowners opt to get a home appraisal before selling, particularly if they can’t figure out a list price. Note that the home buyer’s lender will often order their own appraisal. This is why some sellers opt to perform a do-it-yourself home appraisal that, while not official, gives them an accurate range for a list price.

Did you know 76% of sales closing in January 2020 had contract contingencies? 43% pertained to getting an acceptable appraisal. (Source: National Association of Realtors)

3. Looking for financing
When you’re looking to access your home equity —whether through a home equity loan, home equity line of credit (HELOC), refinance, or a home equity investment—your lender or investor will need to know the market value of your home in order to determine the amount of equity you have available.

4. Divorce
For homeowners settling a divorce, a home appraisal ensures the value of the house is split evenly between homeowners. If one party plans to stay in the house, lawyers can accurately assess how much that party owes the other. If both parties agree to sell the home, the appraisal can make it easier to agree on a list price.

Download the Homeowners Guide to Home Value

5. Bankruptcy
If a homeowner files for bankruptcy, they are required to prove their current financial situation to the court through documentation that includes income, debts, and value of assets, including any property.

6. Construction defects
If a home is significantly damaged due to construction defects and the homeowner decides to file an insurance claim or take other legal action, they will need to prove what damage is from the construction defects. The first step to recouping the losses is often an appraisal of the property.

7. Bail bonds
If a homeowner is looking to use their home as collateral for a bail bond, a home appraisal is needed to determine the value of the property and ensure that its value is greater than the amount of the bond.

8. Eliminating PMI
If a homeowner has a conventional loan and made a down payment of less than 20% on the house, then they likely had to purchase private mortgage insurance (PMI). If property values have increased in the property’s area, the homeowner can elect to order a home appraisal to determine if the PMI payments may be eliminated.

How do your homeownership costs compare to other American homeowners like you? Download your free copy of our 2021 Homeowner Report and find out.

2021 Homeowner Report

9. Property tax assessment appeal
If a homeowner feels the tax assessor valued their home higher than its worth, the homeowner may appeal their property tax assessment. In this case, a professional home appraisal can serve to support the appeal.

The list keeps going, but the most important takeaway is that no matter your reason for having your property appraised, it’s imperative that the appraisal is current and accurate in order to obtain its true current market value. Ensure that the appraiser is credible and certified, and that they have access to every area in and outside of your home.

The more you know about your home equity, the better decisions you can make about what to do with it. Do you know how much equity you have in your home? The Home Equity Dashboard makes it easy to find out.

You should know

We do our best to make sure that the information in this post is as accurate as possible as of the date it is published, but things change quickly sometimes. Hometap does not endorse or monitor any linked websites. Individual situations differ, so consult your own finance, tax or legal professional to determine what makes sense for you.

Hometap is made up of a collaborative team of underwriters, investment managers, financial analysts, and—most importantly—homeowners—in the home financing field that understand the challenges that come with owning a home.

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