If you’re shopping for a loan to buy a home or refinance your mortgage, you may already know that a home appraisal is almost always required before a loan can close. But if you’re like many other borrowers, you might not know much about appraisals or why they’re so important.
Appraisals have been a hot topic in recent months due to new rules that have changed how lenders and mortgage brokers order appraisals for certain types of loans. The new rules are spelled out in the Home Valuation of Code of Conduct (HVCC), which became effective May 1, 2009.
What is an appraisal?Technically, a real estate appraisal is an opinion of a property’s value prepared by a licensed real estate appraiser. Each property is unique, so appraisers rely on their expertise and information they’ve gathered about the neighborhood, the property and sales prices of other comparable properties.
Appraisals are supposed to be unbiased and free from the influence of anyone’s opinion of the home’s value. The new rules have placed greater restrictions on attempts to unduly influence appraisers.
Who pays for the appraisal?Borrowers usually pay for a home appraisal upfront or during the loan application process since the appraisal must be completed before the lender will approve the loan. Under the new rules, borrowers who switch to a different lender during the loan process, as sometimes happens, may have to pay for another appraisal to satisfy the new lender. Even though the borrower pays the appraiser’s fee through the lender, the appraiser typically is independent and not an employee of the lender.
The main purpose of an appraisal is to help the lender assess the value of the property and decide whether to approve the loan. That’s why a new appraisal typically is required for a loan refinance as well as a home purchase.
Is an appraisal the same as a home inspection?Another common misconception is that a home appraisal is the same as a home inspection. Appraisers do consider the condition of the home and may note any major problems, but their observations aren’t a substitute for a home inspection. Home buyers should always get an inspection of the home by a home inspector in addition to the appraisal.