For many homeowners, navigating the world of buying and selling can feel like a full-time job. Discernment between what is absolutely necessary, what is beneficial, and what is superfluous can take many months to sort out. A home appraisal is assumed as a compulsory step for any real estate transaction. However, some home loans may not require an appraisal and prospective home buyers and sellers are able to skip this step entirely. Here’s what you need to know.
How does a home appraisal work?
Typically, the home buyer will pay for an appraisal on the prospective home prior to signing on a loan. A majority of lenders require a home appraisal so they can rest assured that the home’s value is equivalent to the money they are doling out. Appraisals may cost up to $550 to $650 and the buyer can pay the fee up front or lump it in with closing costs.
An appraisal works to determine the property’s worth and derives this number from a few key factors, including location, amenities, structural condition and market conditions. For example, a 1,200 square foot home in Boulder, built in 2000 may appraise for $750,000, whereas the exact same home would appraise for $235,000 in Tampa, Florida.
Why would I skip an appraisal?
It takes time. During typical years, an appraisal can take an average of seven business days. When considering the myriad factors that go into buying a home, this isn’t a large chunk of time. However, in this red-hot real estate market that the U.S. is currently experiencing, appraisals can take weeks, or even months, to get scheduled.
It costs money. Sure, the average appraisal runs less than $500. However, home prices are soaring and inventory remains scarce. Expediting the buying process and lessening the financial burden in any way possible can make or break a home sale for some buyers.
A Property Inspection Waiver offers insight and efficiency
Buyers may be hesitant to skip the appraisal process, even if their lender doesn’t require it, because an appraisal can help safeguard against overpaying. However, on some qualifying home loans, mortgage lenders are able to offer a Property Inspection Waiver (PIW).
This acts as a useful negotiating tool that still evaluates the overall condition and price of the home, based on previous appraisal data. In order to qualify for a PIW mortgage, the borrower needs to have a minimum of 20 percent down. Prior to writing an offer on a prospective home, a mortgage lender can help you determine whether an appraisal will be needed or if you can go the PIW route.
By Michaela Phillips. Michaela is the Senior Lender for Synergy One Lending. She enjoys teaching her clients the pros and cons of being a Real Estate Investor. Contact Michaela at 303.579.5517, e-mail
[email protected] or visit michaelaphillips.com. NMLS: 312874.