One of the most important aspects of buying, selling, or refinancing a mortgage is real estate appraisal. An appraisal is integral for everyone involved in the real estate process so there is merit in knowing more about the entire process. 

Home appraisal 101

In simple words, an appraisal is a professional unbiased opinion of a home’s value. This is often used during mortgages during buying, selling, or refinancing a property. In case of buy-and-sell, an appraisal is used to check whether the contract price of a home is suitable for its location, condition, and amenities. For refinancing, appraisals act as a way to assure the lender that is not lending the borrower more than its actual value, when used for collateral. This is a way for a bank to protect itself from lending more than it can retrieve in a worst-case scenario. 

How are real estate appraisal values determined? 

The lender is the one who will usually ask for an appraisal in order to protect their interests. The appraisal will then be done by the qualified appraiser. They should be familiar with the local area and have no direct interest in the transaction according to legislation. Appraisers must then perform a full visual inspection of both the exterior and interior of the property. In this inspection, the property’s current condition is taken note of. It will determine if it needs further repairs or maintenance. 

The real estate appraisal value is determined by the market trends as well as the recent sales of similar properties. The key factors that can affect appraisal are: property development, location, terrain, and accessibility, among others.

What makes a low home appraisal? The location would be the biggest determining factor — if the home is in an undesirable neighborhood. Nothing can be done with the actual location but owners can still do something to help keep its value. Things like sprucing up the area surrounding the property, keeping the house clean and tidy, being proactive with maintenance, and doing the necessary repairs can all lessen the factors of the appraisal from lowering. 

Appraisals for buyers 

For home buyers, the appraisal is a key step in the closing process. When the appraisal comes in or above the contract price, then the transaction proceeds as planned. However, when the opposite happens and it comes below the contract price. The transaction is delayed or even derailed. Remember that the buyer has the advantage in the negotiation as a low appraisal can act as a negotiating tool to get the seller to lower the price. Banks would not lend any buyer more than what the property is worth in the appraisal. 

Appraisals for sellers and refinancers

If the appraisal is lower than what is expected, presenting a factual case to the appraiser to get the property to have a higher value is possible. This can help prompt them to revise the initial appraisal. However, if the low appraisal is accurate, then that means sellers might have to lower the price of the property for it to get sold. It is not good to wait for a buyer who will pay in cash and would not require an appraisal for the transaction. 

For those refinancing a property, a low appraisal can prevent it from happening. The value of the appraisal should be above or equal to the intended refinanced amount for its approval. 

What is next after the appraisal? 

Once the appraisal is conducted by the qualified appraiser, the next step would be the mortgage underwriting. An underwriter will review the loan file to check if things are in order and all documents are submitted. Then the risk of the loan would be assessed. Ir would be the basis for approving or denying the loan from all things considered. 

A real estate appraisal is important no matter the nature of the property transaction, may this be commercial, residential, industrial real estate, or land. Work with an experienced real estate services firm that conducts real estate appraisal valuation like Santos Knight Frank. Santos Knight Frank offers a wide array of real estate services in one roof from brokerage, consultancy, research, property management, and valuation. Learn more about appraisal valuation and other real estate services by visiting https://santosknightfrank.com/

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About Santos Knight Frank

Santos Knight Frank provides global real estate services. Since the company first opened its doors in 1994, it has become the Philippines’ first and largest fully integrated real estate services provider, with clients that include multinational corporations and institutional investors, as well as occupiers, owners and developers of real estate locally and across the globe.

The company’s partner, Knight Frank, is the largest independent global real estate consultancy. Founded in 1896 and headquartered in London, Knight Frank operates in more than 523 offices in 60 countries across the globe, including the strategically important partnership with Newmark Knight Frank in the U.S. (with Newmark Cornish & Carey in the West Coast).