What is a home appraisal? Is it the assessed value or is it determined during the home inspection? We hate to tell you this, but neither is correct.
A home appraisal is basically a qualified third-party’s educated calculation on how much the home you’re purchasing is worth. Generally an appraiser looks at factors such as the home’s square footage, number of bedrooms and bathrooms, overall condition of the home, updates and remodels, permanent fixtures (think in-ground pools, fences, sheds, or the like), and the neighborhood the home is located in.
We know, it’s quite a lot to review.
Financial institutions generally require an appraisal prior to closing. They do this to cover their own investment. They don’t want to lend you $500,000 to purchase a home only worth $150,000.
Why? Because if you default on the loan, the collateral they have is less than it would cost to pay off the remainder of your loan, meaning they would lose out on quite a bit of money.
Appraisals aren’t just beneficial for the lender though, they’re also beneficial for you as a buyer. Think about it. Don’t you want to know what the home is actually worth, not just what someone is asking for it? Not only is the third-party qualified to make an accurate assessment, but they’re impartial to the home.
Sellers are more likely to assume their home is worth more than it actually is. They think about all of the work and care they put into maintaining the home and sometimes that’s reflected in the listing price.
Now, you may be thinking to yourself that you don’t want to have an appraisal done because you don’t want the taxes to increase on the home you are purchasing. You’re in the clear as appraisals don’t affect your taxes.
The value that affects the amount of taxes you pay is the assessed value and is determined by the county your home is located in. The county actually never sees your home’s appraised value and their assessment values are primarily based on the home’s location, not the home itself.
Because appraisals and assessments are based on different factors, homeowners often find that the appraised and assessed values of their homes differ. In Omaha, this tends to happen most often east of 120th Street.
Having an appraised value that differs from the assessed value isn’t necessarily a bad thing. That is, unless the appraised value is greatly lower than the assessed value. When that happens, you’re paying more in taxes than your home is actually worth, but if it’s beyond the preliminary assessment period there’s nothing you can do about it.
Do you feel a little better now that you know what an appraisal is? We feel much better knowing you’re a more informed buyer or homeowner. Please, feel free to reach out to us with any questions you may have regarding the mortgage process.