9 Most Common Reasons to Order a Property Appraisal
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.
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.
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.
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 opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, consult with a licensed advisor.