Whether you are a home buyer or seller, an appraisal is a key part of the whole process. And in many cases, a real estate valuation, an appraisal, seems to be purely arbitrary and overly complicated.
Fundamentally, though, an appraisal is data-driven: it is simply an opinion about a home’s value derived from similar-housing data and neighborhood data. That’s why you need to stop believing these four home appraisal stories in TX.
1. The Appraiser Works for and is on the Side of the Buyer
There is a common misconception in real estate that the appraiser works for the buyer, leading to a biased valuation in favor of the buyer. However, although the buyer covers the cost of the home appraisal, the appraiser is employed by and serves the lender who commissions their services.
Ensuring alignment between the buyer, seller, and the lender is crucial, even if a price agreement has been established between the buyer and seller. The lender, being an investor in the house value as well as the buyer, needs assurance that the property’s value aligns with the purchase price. It is illegal for either party to influence an appraiser’s valuation. Appraisers, along with agents and inspectors, are accountable to regulatory bodies.
2. More Amenities and Bigger House Mean Higher Valuation
Upgrades, renovations, and numerous amenities, along with ample square footage, do not always equate to a higher valuation. The intricacies of a home appraisal go beyond surface features. Consider the classic example of a swimming pool, often valued at much less than its initial cost upon resale. However, in a neighborhood where pools are common, a home without one may be devalued for lacking this feature.
The value of a house is calculated on the basis of sales data for similar homes in the neighborhood. So if a house is more amenity filled and much larger than all others in the neighborhood, then the appraiser won’t have any sales data to work with. In that case, the larger home with all the bells and whistles may not be appraised for what the parties involved think it’s worth. Basically, if surrounding houses (that have been appraised and/or sold) were built on the lot of the house in question, that’s what would be used to determine its appraised value.
So contrary to what you see on tv on these flipper shows just because a seller wants to sell the house for a higher price because it is “nicer than other houses” is not a legitimate cause to increase a price. While upgrades do add value sometimes in neighborhood that value is not justified. A house with granite countertops in a subdivision of formica countertops does not justify a big difference if any in sales price. It will help the home sell faster but not necessarily for any extra money. A subdivision’s values can only be pushed so far.
3. An Appraisal Equals a Home Inspection
Another appraisal story floating around out there is that a home inspection is the same thing as a home appraisal and vice versa. Although both inspectors and appraisers inspect a property to determine its condition, the similarities end there. It’s true they are both safeguards for the buyer and lender, but they have different purposes.
An inspector’s job, primarily, is to detect any and all problems (and even potential problems) with a home. An appraiser’s job, on the other hand, is to determine the objective market value of the same house. Of course, an appraiser will, just like an inspector, note the condition of wiring, plumbing, roof, and so on, but only as a means to arrive at a valuation for the lender. The appraiser will note anything that is a requirement to be repaired to get the loan. That could mean rot repairs, proper stair railings (to code), roof repairs. Anything that might indicate condition that an appraiser would want to be in loan condition. Each different type of loan will have different requirements for items like heat, etc.
4. There’s Nothing You Can Do About a Low Home Appraisal in TX
Also, if you are a seller and the home appraisal comes in much lower than you think it should, you do have recourse. Bear in mind that mistakes do happen – mistakes that can severely jeopardize a potential deal. Yet some appraisals stand such as VA. While you can protest the appraisal it goes back to the appraiser to review the remarks about the thoughts of why the appraisal could be wrong and determine if he made a mistake. Another appraisal can be asked for but it is an additional cost to the buyer and will take time to process.
In such a case, the homeowner, the seller, can contact the buyer’s lender and explain that they will be protesting the appraisal.