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When Getting a Home Appraisal Does (and Doesn’t) Make Sense

getting a home appraisal

Getting a home appraisal adds expense — and sometimes suspense — to a mortgage approval. A low appraisal could cause a home purchase to fall through. For a refinance, the home appraisal holds the key to getting lower rates or being able to tap more equity.

With some lenders waiving the need for an appraisal altogether, the big question is: When is getting a home appraisal a good idea?

When getting a home appraisal makes sense

Getting a home appraisal is a good idea if you want an unbiased estimate of your home’s value from a licensed real estate appraiser. Unlike a free online home appraisal, a uniform residential appraisal report provides a detailed analysis of how your home stacks up to recent home sales in your area.

An online value estimator may give you a good idea of sales price trends in your neighborhood, but the value may be off by 20% or more, said Dan Fries, president and chief appraiser for Daniel Fries & Associates in Cumming, Ga.

Fries, who has been in the appraisal business for 36 years, said that trying to guess your home’s value without an appraisal is like playing baseball without an umpire; it can be done, but you’ll have problems.

Getting a home appraisal may be worth the average $300 to $400 price tag in certain cases, such as:

You want to pinpoint your asking price for a home sale.

A real estate appraiser focuses on market value by comparing your home to similar homes that recently sold or are listed for sale nearby. However, it’s just one person’s opinion: A real estate appraiser hired on behalf of someone buying your home might have a different opinion of value.

You want to know how much your home is worth after renovations.

Home remodels and renovations can boost your home’s value. Until an appraiser compares the improvements to nearby homes, though, you won’t know how much your home is worth with the upgrades.

You want to get rid of private mortgage insurance (PMI).

PMI protects lenders in case you default, and it’s required if you can’t make a 20% down payment when you buy a home. If an appraisal shows you have 20% equity, conventional lenders have to remove the PMI from your monthly payment.

You’re buying a home from a relative or friend.

Because a home appraisal provides an unbiased value estimate, getting one may be useful to help you negotiate the home price in a transaction between family and friends. If the seller is also the lender, an appraisal may ensure your payments aren’t based on an inflated value.

You’re buying or refinancing a custom-built home with unique features.

“On high-value homes, the owner could be way off on valuing upgrades, pools, guest houses, acreage or special views,” Fries said. “The more complex the property, the more margin of error from the tax assessor, and that’s the data automated valuation models use.”

Situations when a home appraisal doesn’t make sense

Most lenders require a home appraisal for mortgage financing. However, recent changes to Fannie Mae and Freddie Mac guidelines allow for an appraisal waiver. An automated underwriting system (AUS) makes the judgment call based on a computer algorithm. If the system accepts your estimated value and offers a waiver, an appraisal isn’t necessary.

Here are some cases when a home appraisal probably doesn’t make sense.

You’re eligible for an appraisal waiver and just want to lower your rate.

There’s no benefit to getting a home appraisal for a rate reduction refinance if one isn’t required. If you’re happy with the rate and fees you’ve been quoted, you’ll typically save $300 or $400 by avoiding the home appraisal cost.

You’re eligible for a government-backed streamline refinance loan.

Homeowners with a current FHA or VA loan won’t need a home appraisal under the FHA streamline refinance or VA interest rate reduction refinance loan (IRRRL) programs. An added bonus: No income verification is required either.

Your home needs to be fixed up or is being renovated.

Real estate appraisers may ding the value of your home if it’s outdated, has been poorly maintained or is being renovated at the time of the appraisal inspection. If you’re short on cash to make needed improvements, consider taking out a renovation loan. You can usually roll the repair costs into the loan amount.

 

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