Real Estate Appraisal: What Home Buyers Need to Know

Published on: 27 Jan 2025

As a home buyer, you need to know what real estate appraisals are! So here are all the things you need to know about a real estate appraisal.

What is an Appraisal?

An appraisal is the total value of the property. Appraisal could also be about the estimated value of a business, collection or an antique item by an authorised person. The certified appraiser should have a position from a system governing the jurisdiction of the appraiser. Appraisals are typically used for insurance and tax purposes to know the possible selling price of any property.

What are home appraisals?

This is essential in home buying, selling, and refining an existing loan. An appraisal is used to know the current home value to ensure that the price is reflected after looking at the home's condition, age, location, characteristics, and features, such as the interiors. It also helps the banks and lenders avoid loaning more money to the borrower than the house is worth.

How does home appraisal work?

A legal expert is sent via a bank to physically observe and examine the home and make an appraisal report based on factors such as:

1. Age: Which year the house was constructed and how old it is.
2. Size: What is the actual size of the home?
3. Map: Looking at the location around the real estate
4. Structure: In what way is it made, and will its kind of structure have an issue in the future
5. Construction: Examining the material used.
6. Deterioration: Is it already stepping towards deteriorating, and if not, what is the condition of the home right now?
7. Market trends: Depending on the fluctuation of the market.
8. Prices of similar property nearby: Comparing the same type of homes and their values.
9. Rental fees: How much rental amount will the property bring in?    

The process and the cost.

The process begins when the buyer makes an offer on a home, and the seller accepts that offer. The buyer's lender may order the appraisal on their part though the buyer has to pay for it.
After the appraisal is ordered, the appraiser will schedule a time to visit the property and conduct a review accordingly, checking the interior condition and exterior of the home to know its worth. It may take a few minutes to complete or may take a few hours. After visiting the property, they will use the information to estimate its value and prepare an appraisal report, including figures representing the home's value.

How much does a home appraisal cost?

On average, some property appraisers charge between 0.1 to 0.3 per cent of the total property. The cost could also depend on the type of property. The buyer is most often responsible for paying the fees when the appraisal is ordered.

Is a home appraisal necessary?

It is a requirement when purchasing a home with a mortgage. Lenders can use the appraisal to determine the home's worth and the money the buyer is asking for. A buyer may not require an assessment if they are paying cash for a property instead of taking a loan.

Should a buyer be present during the appraisal?

Buyers and sellers can ask to be there at the home appraisal with the permission of the appraiser. Though they can also ask their agent to be present there, commonly, it is optional for buyers and sellers to be present.

What will happen if the appraisal is low?

If the appraisal is lower than the buyer expected, there are several options to choose from. You can ask the seller to renegotiate the price of the property so that it can align with the value of the property. The next option could be paying the cost out of your pocket and closing the gap between the appraised value and the asking price.

Appraisal methods

There are two methods

Sales comparison method: This is when the appraiser differentiates between two quoted property values with recent transactions in the neighbourhood. This could be gathered by looking into the sales deed, listing service databases and third-party websites.

Cost approach: The appraiser thinks about the property's current value and estimates the cost required to rebuild the property from the very start. In such cases, the property is destroyed, and the worth of the land is included to know the final property value.

How can it impact your home loan application?

Based on the report created by the appraiser, the bank will decide whether to lend you a certain amount of this value or not. It depends on the loan-to-value ratio and the borrower's repayment capacity. Most banks in India offer 80% of the property value.

How does it help home buyers?

At a certain point, a buyer may agree to pay more than what the property is worth. At the same time, financial bodies use a different approach to evaluate a property. The appraisals will help give the correct property value, allowing the buyer to renegotiate the deal if the property is overpriced. It would reduce the seller's chances to close the deal quickly if they ask for a higher price than the market rate. Paying the asking price for such a property would be unfair to the buyer.

Well, this is what a real estate appraisal is, and this is how it serves us so many benefits. Hoping this blog was helpful to you! Want to read more such blogs? Follow EstateMint blogs!