An appraisal is an exact, straightforward evaluation of a property. Whether you’re a buyer, seller, house investor or refinancer, you’ll need to review an appraisal properly to figure out if the property is worth a shot. A good home appraisal is a pivotal component in a flawless transaction.
However, while going through an appraisal, you should know what points to look out for. If you don’t, you might miss out on essential aspects that make all the difference between a profitable and a fruitless deal.
Don’t worry, here’s a list of things you should review carefully in an appraisal to make sure you get the most out of your real estate investment. So let’s get started.
What is a Home Appraisal?
First of all, you’ll need to know why an appraisal is an integral part of a real estate deal.
You see, the price you buy a property depends on the appraisal. It’s a professional certificate of the home’s value. This way, when you’re creating your final contract with the homeowner, an appraisal will help you determine whether the contract price is appropriate or not.
Moreover, if you review the appraisal correctly and find out it doesn’t evaluate the property according to your contract, you can negotiate a lower buying price.
Basically, how beneficial your real estate deal turns out depends entirely on your evaluation of the appraisal.
Things to Review in an Appraisal
As we mentioned before, an appraisal includes everything about the property. From its amenities, square footage, the number of rooms, and functionality.
Among all the details, you’ll need to filter out the information that’s important for your transaction.
Here are the crucial points to consider while reviewing an appraisal.
Compare the Contract Price With Neighboring Properties
The appraisal will give you a fair value for the property you’re planning to buy. This value will then determine the contract price for your real estate transaction. Before you agree to the terms, make sure you check the recent sale prices of properties in the same area.
Comparing these prices will not only let you know if the appraisal is accurate, but will give you an insight into whether the neighborhood is worth investing in or not. You should do this no matter if you are buying for yourself, participating in real estate crowdfunding or investing in a property.
Give Equal Thought to the Assets and Liabilities
Yes, both of these will be mentioned in the appraisal. However, you’ll need to make sure you don’t get overwhelmed by the liabilities or too excited with the assets.
While reviewing the appraisal, keep a neutral approach and balance out the assets and liabilities before coming to a final decision.
For example, good square footage and lot size can be valuable if you’re buying the property for resale.
On the other hand, if the property has structural defects, health hazards, or external factors like traffic or intense pollution, the size won’t really matter.
Don’t get easily lured by an asset or get taken aback by liabilities. Look out for a deal where one doesn’t outweigh the other in any way.
Consider the Difference Between the Contract and Appraisal Price
Sometimes, you might find that the appraisal sets a different price for the property than the seller’s asking price. If the appraisal gives a lower rate for the property, you can quickly negotiate for a better price.
If you’re buying on a mortgage, this factor is crucial for you. That’s because a bank will never lend you more than what the property is worth.
Usually, a bank will lend you about 80-90% of the final price.
Make sure you look into the value proposed by the appraisal to use it to your benefit.
Look Into The Appraiser Credibility
Whatever you do, don’t rely entirely on an appraisal when closing a deal. After all, appraisers are human and can make mistakes. They might end up including wrong information or imperfect findings.
Check the credibility of the appraiser overlooking the evaluation of the property. If you feel something’s not right, you can collect the facts and present your case to negotiate a better price.
Go Through the Data
Most importantly, recheck the data the appraiser has used to evaluate the property. If the data and the conclusion align, it indicates that the appraisal is accurate.
You can even apply for a reevaluation if you feel that something doesn’t add up. If you are looking at a rental investment property, you can do your own discounted cash flow analysis by using a free rental property spreadsheet. This can serve as a good gut check on the value of the property.
Final Words
In a nutshell, as a buyer, you should carefully scrutinize an appraisal to make sure you’re getting a good deal for your money. Go through all the clauses carefully and compare them to the data you have at hand to find out whether the information is correct.
Sometimes, a little attention to detail can help you save lots of money, while negligence can lead you into a scam. Just keep these points in mind when you’re reviewing an appraisal, and you’ll surely make a good purchase. Happy investing!
Author Bio: Financial Wolves is a blog focused on helping you make more money to achieve financial freedom. After repaying student loans, I’ve shifted my focus to make more money from side hustles, real estate, freelancing, and the online economy. Follow us on Pinterest, YouTube, Twitter, and Facebook.
