If you are in the market to buy, or recently bought a new home, you have likely heard of an appraisal, most likely from your mortgage lender. Simply put, an appraisal is an appraisal of a property and an appraised value is an estimate of the value of a property at any given time. My recent experience as a first-time home buyer taught me that there are actually two appraisals: the first is for the purpose of securing your loan prior to purchase, and the second is used by the local tax authority to determine how much you will pay in taxes. to property: This is often called a “tax assessment.” At first I was confused about the difference between the two, so I took the time to do my research and wrote this article to resolve any confusion that other owners may feel.

What is a home purchase appraisal?

For most, buying a home requires taking out a mortgage with a bank or other lending institution. The lender wants to protect your investment, so they typically order an appraisal of the property to determine if it is worth at least the amount the buyer is borrowing. (In other words, a lender wants to make sure you don’t lend more than the property is worth.) This is important because if you sign a mortgage, your new home serves as collateral for the loan. If you then default on your mortgage and go into foreclosure, the lender can resell your home to get your investment back.

The cost of this appraisal varies and generally comes out of your own pocket. You should check with your lender for the exact costs.It may seem like an inconvenient expense, but appraisals can give you security and even leverage. As a home buyer, you need to be sure that you are paying a fair price for a home where you will live for years to come. Appraisals can reveal whether the property is worth less than the seller’s asking price. In that case, you can walk away and save your money (as long as you have an appraisal contingency), or you can try to renegotiate the price with the seller. Look for the appraisal contingency in your purchase contract that protects you if you want to abandon the sale and sometimes refund your money as collateral.

They begin by visiting the home to assess its condition and quality of construction. Neither you nor the seller should be present for this, but you can be there to learn the process further if you wish. The appraiser will review the exterior and interior of the home, noting its square footage, number of bedrooms and bathrooms, lot size, parking, and zoning. They flag any problems and special features that respectively detract and add value to the market price of the home. Other factors in the valuation include the age of the home, curb appeal, and recent repairs and improvements. Everything that is not attached to the property, such as decoration and furniture, is not considered. This visit can last between 15 minutes and a couple of hours, depending on the size and condition of the house. It should not be confused with a home inspection.

In addition to your visit, the appraiser investigates the neighborhood and its surroundings. They pay attention to local problems and proximity to schools, hospitals and services. Sources of noise pollution, such as a nearby airport or train tracks, and other detracting influences are observed. Most importantly, however, the appraiser should review current market trends and comparable properties (or comps) that are very similar to the home he is evaluating. These supplemental properties must be located in the same neighborhood as the property being appraised and have been sold in the last few months. Your sales prices provide a range of dollars, and the appraiser adds or subtracts those unique characteristics between the comparisons and your potential home to arrive at a fair market value.

Typically, the appraiser’s report will be available in less than a week. If they estimate that the home is not worth the sale price, but you still want to proceed with the sale, your lender will probably not loan more than the appraised value and, as a result, will probably ask you to pay the difference between the sale price and the appraised value. That means you’ll probably have to put more money down for your down payment than was originally discussed, because no lender will give more than the maximum LTV, which is the loan-to-value ratio. This financial term expresses the ratio of the amount of a loan you will get to the value of the property.

What is the appraisal of property taxes?

One of the most demanding responsibilities as a homeowner is paying property taxes – bad pun! Property taxes help pay for local services, including police, fire departments, road maintenance, sanitation, hospitals, public schools, libraries, parks, and other recreational activities. The local tax authorities then use that value to determine what you will pay in property taxes.

In addition to regular appraisals, most jurisdictions will re-evaluate a property at the time of sale. Many jurisdictions use one of three approaches to evaluating a property: (1) sales comparison approach, (2) income approach, and (3) cost approach. I will highlight the sales comparison approach, as it is the most widely used and was used to evaluate my own property.