Celeste O’Hara, NHCB

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Understanding Your Appraisal

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What did you just pay for your new house? Let’s say $250,000. That should be the value of the home, right? That’s what the lender will say your home is worth as your loan moves through the approval process, correct? Not really, no. While your sales contract states $250,000 it is generally considered to be the current market value of your property. Your real estate agent put together an offer with a combination of reviewing the prices of similar homes in the area along with the highest price you should pay. That’s market value. But a lender takes a slightly different approach. The lender uses the value of an appraisal, not your sales contract.

When you visit a neighborhood you’ll see that while the homes there are similar, they’re not all exactly alike. Some may have matured trees. The home next to it does not, but is two stories instead of one. The next home has a swimming pool, while the next has four bedrooms instead of three. These homes are similar, but not the same. It’s the appraiser’s job to pore through recent sales data of homes in this neighborhood to arrive at a final market value.

The appraiser will take a copy of your sales contract and do some homework, looking for recent sales. Most loan programs ask that all properties used to compare your property be within a one-mile radius. Such sales, called “comps,” should also be within a certain time frame, typically within 90 days but if there are no such sales, the timeline can be extended up to six months. There should be at least three such sales listed in the appraisal.

The appraiser will note the sales price of the comps and make note of any measurable differences between those properties and yours. If, for example, you have a fireplace and the others do not, then the value of your property can be adjusted upward. A newly remodeled kitchen can also affect value. Of course, square footage of the property is a factor and so is the size of the lot. There are other adjustments that can be made and those adjustments will be listed in your appraisal.

One final note, you pay for the appraisal but it’s the lender’s name that will appear on the front of the appraisal, not yours. However, you have a right to receive a copy of that appraisal within three business days of completion, whether or not the sale ultimately closes.

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