If you’re looking to refinance a mortgage or buy a home through a loan, the lender will need what’s called an appraisal on the home. This is an objective assessment of the value of the home. Something of great importance to a lender considering this is their collateral on loan. Whether you’re a buyer or seller, it will help you immensely to understand how the appraisal process works. Here you’ll find everything you need to know about home appraisals in NYC and how they work.
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What is a Home Appraisal?
What do home appraisals involve?
The job of an appraiser is similar to a home inspector but differs in some respects. The appraiser will look through the home, considering the land it’s on as well as other things to arrive at an estimate of the properties market value. Everything, whether big or small, will be taken into account. It will then be compared with like-kind properties that sold in the past 12 months to arrive at a final appraisal price.
What goes into a home appraisal?
Even if a buyer loves a place and is okay with the price, the lender will still require that a third party – in the form of an appraiser – take a look at it to determine its value. To arrive at an accurate estimate of the home’s value, they will look at every area of the property. This includes all of the following:
- The exterior of the Home – the appraiser will look at every part of the construction. This consists of the foundation, roof, and walls, looking for any problems that could lower its value.
- Size of the Property – the value of a home depends a great deal on the size of the square feet and lot. The more rooms and bathrooms bring a higher valuation. Knowing the floor area (FAR) of the property will tell you whether or not it has space for extensions which factors into its market value.
- Condition – just like the exterior, the interior of the home will be looked at carefully. This includes the flooring, kitchen, plumbing, electrical, lighting, and plumbing components of the house.
- Improvements – if any new additions have been made to the original construction this will also be factored in. A new bathroom or HAVC system can add many more years of life to the property which pushes the value higher.
Who is the appraisal information available to?
The information and final verdict gathered by the appraiser is entirely at the disposal of the one who ordered it, in most cases the lender. It is entirely at their discretion how this information is distributed, regardless of who paid for it. However, if the buyer orders the appraisal, the lender is required by law to provide them with a copy.
How long is an appraisal valid for?
In most cases, an appraisal is valid for six months. However, market prices can change fast so a lender may only consider an appraisal valid for no more than three months in some cases. Sometimes a home appraisal will need to be recertified if it’s found out of date. Any changes, both to the market and the property, can drastically affect its price.
As such, it’s often better than a seller does not get an appraisal as a way to justify the asking price. The buyer’s lender will still want to see their one from an independent source.
Appraisals are a standard part of any real estate purchase that requires mortgage financing. Understanding how they work will make the buying process, for both the buyer and seller much easier. If you’re a seller, especially for a townhouse, expect to be dealing with this when a potential buyer shows up.
How to Deal With a Low Appraisal When Buying
Your lender insists that you hire an appraiser to estimate the fair market value of the property. The appraisal is important to your bank since the home is the collateral backing the loan. It is not a simple matter in New York City since there are many factors.
Appraisers use their best tools to estimate the value, and they can come up with a different figure than you and your agent. There are times where it will be lower than your accepted offer, which presents a problem for your loan approval. However, there are certain actions you can take to rectify the situation.
Ask for a do-over
You can ask for a second appraisal from your bank. To do this, request your lender provide you with a list of approved appraisers. You want to make sure the new company is familiar with New York City’s market. Your agent can assist by providing the appraiser with recent comparable sales. Keep in mind that you likely need to pay the extra fee for another appraisal since buyers typically bear the cost.
Typically, there is a mortgage contingency clause which allows buyers to get out of the contract without penalty if he/she does not qualify for a mortgage. This might prove a key negotiating point since the bank won’t loan you the amount based on your offering price. As a buyer, you can use this opportunity to revise discussions and obtain a lower price.
Naturally, sellers are resistant to take this step. You will need to show that the appraisal is not abnormally low but accurately reflects current market conditions.
Put more money down
The bank will only loan a certain amount based on the appraisal. However, you can still buy the apartment for the same price. After all, the bank is not interested if you pay more. It is only going to lend you a certain amount, though. The lender may cap the loan, but you can make a larger down payment. That way, the loan stays within the bank’s approved range.
There are a couple of caveats. Clearly, you do not want to overpay. Therefore, make sure your offer reflects the current market value, which your buyer’s agent can help ensure. Furthermore, if you are purchasing a co-op, check that you still meet the required post-liquidity requirement.
Challenge the appraisal
If you honestly feel the appraisal is too low, you can submit facts and figures that support your claim. The easiest is when there are factual errors, such as the number of bedrooms or square footage. You can also provide relevant comps, but you need to make sure these are recent and better comparables than what your lender used. For instance, a co-op unit has a different value than a condo, even in the same neighborhood. Units in the same building can have different valuations, depending on the size, view, and location. Still, this is not an easy argument to win.
Shop for another lender
You can always seek another lender, which conducts a new appraisal. This option presents several challenges, however. First, there is no guarantee that your new bank’s home appraisal will come in any higher than your previous lender’s estimate. Second, you have to pay another appraisal fee. Third, there are other factors to consider, such as the interest rate and additional fees. Fourth, your new bank may not approve of the building. Fifth, the seller may get spooked since you had pre-approval, and you are starting the process over. Lastly, your closing is likely to get delayed, further upsetting the seller.
If all else fails, typically you can back out of the deal without penalty assuming you have a mortgage contingency.
6 Ways To Get a Higher Home Appraisal
A home appraisal is essentially an evaluation of what your home is worth. The main criteria your appraiser considers is the location of your home, its size (including square footage, bedrooms, bathrooms, and lot size), it’s condition, (including the quality of structure inside and out, appliances, and any possibly disrepair), and any features it offers or lacks, (like central air, a washer, and dryer, an elevator, or a doorman).
Although factors like the size and location of your home may be out of your control, there are many steps sellers can take to increase their home’s value quickly. What’s better, these steps are simple and affordable.
Before we get to our list, we always encourage sellers to prepare themselves for their appraisal by checking out homes for sale in their area. This will allow you to get a sense of what the competition looks like and compare what’s out there to what you’re a home can offer. Scoping things out is the best way to figure out the kind of improvements you may need to make around the house.
Once you have an idea of what’s out there, you can begin to take these steps to up the value of your home. A little goes a long way.
Make your home spotless.
Don’t just tidy up, do a deep clean. Polish the floors, wash the windows, see your reflection in the bathroom faucet. Go ahead and make the place smell nice while you’re at it.
Take care of all those little projects around the house that you may have left lingering.
You’d be shocked to learn how something as small (and low-cost) as caulking the tub or freshening up peeling paint on a baseboard can get you a higher price for your home. Take a good look around and replace the broken handle on the kitchen cabinet or the outlet that’s hanging out of the wall.
Add some nice touches. Go for some “wow.”
Factors. Flowers are a great start. Think about curtains for the windows, nice towels in the bathroom, or some wall decor in places that are a bit sparse.
Invest in low-cost repairs and upgrades
Repainting your home is a great way to make it highly appealing to appraisers (and buyers). Do you have older appliances or surface materials like cabinets or floors? Time to upgrade. Things like new windows, a modern vanity in the bathroom, or a stainless steel microwave may seem like an expensive move when you’re trying to make a profit, but upgrades like these are guaranteed to yield a high return on investment.
Look beyond the home
Consider the assets surrounding your home. Are you in a good school zone? Do you have great public transportation options? Are you close to public parks? Is street parking easy? Public amenities count! Make your appraiser aware of what your home has to offer just by where it’s situated.
Let the appraiser know about any upgrades
You may think that a professional appraiser would never miss any of the work you do to upgrade your home. Don’t count on it! It’s essential to let your appraiser know about all of the recent updates, additions, repairs, and esthetic improvements you’ve made to your home. Show them the fruits of your labor so that all your hard work pays off.