Home appraisals are often a source of confusion during the home selling process. Often homeowners think an appraisal is the same thing as a home inspection, but in reality, they are 2 different entities. An inspection is meant to educate the buyer on the condition of the home while the appraisal is designed to inform the lender on the property’s value. While this is an initial confusion, it still creates more myths about home appraisals than most people can count. To help debunk common home appraisal myths, we compiled a list of what you should really expect and understand:
Myth 1: Appraisals Only Protect the Buyers
Some people believe that an appraisal is to protect the buyer from overpaying. That is fairly close to the truth but it is done less to protect the buyer and more to protect the lender, which does not want to give out a loan for an overpriced house. That can make it harder for the lender to collect the money later on, and in a worst case scenario, leave them responsible for the difference.
Myth 2: Appraisers Use a Formula to Set the Value of a Home
Some people believe that appraisers use specific formulas, such as a set price per square foot to determine how much a home is worth. It is only part of the equation, however. Some factors include the lot size, square footage, home condition, location, and recent sales in the area. Each appraiser carefully weighs them when determining how much the home is worth.
Myth 3: Clean Houses get Better Home Appraisals
Clean dishes, homemade cookies, and a well dusted living room will not change the overall value of the house. An appraiser will notice if the house shows clear signs of neglect, such as cracked walls, broken windows, faded carpets, or other signs that the home will require a lot of repair and maintenance work.
Myth 4: Home Appraisers don’t need to Reveal Home Defects to Buyers
This depends on where the loan is insured. Mortgage insurance from the Federal Housing Administration requires that the appraiser evaluate the physical condition of the home and share any issues they find with the home buyer. Non-FHA mortgages have no such requirements.
Myth 5: A Low Appraisal is a Deal Breaker
If the appraiser values the home for less than the purchase price, the buyer can still purchase the home, with some conditions. Sometimes the seller will reduce the price to match the appraiser’s opinion of the value if they really want the home sold. Other times the buyer can increase their down payment to cover the different or create a separate account to cover repairs. Sometimes the appraiser can change their evaluation if new evidence changes the situation.