Applying for a loan is a complex process as the banks use various techniques to know about the borrowers’ creditworthiness. Before the loan application is approved, the banks carry out multiple checks on the property to ensure that the borrower is asking for the property’s fair value. After carrying out several checks, including residential appraisals, the banks then decide whether to grant the loan or reject the application. In addition, the amount of the loan and the repayment time period can also be altered if the application reaches the acceptance point.
What is a residential appraisal?
A real estate appraisal is a process carried out to know the true value of a property according to the fluctuating market prices. Since the seller can increase their property’s value, or the buyer may value it lower while making a purchase, real estate appraisal is an unbiased process to arrive at the actual contract price of a property. Financial institutions adopt a systematic approach while gathering information about and deciding a property’s actual worth.
The value of a property depends on many factors during the residential appraisal process. These factors include the location of the property, non-movable amenities, the condition of the house in terms of furnishing, market prices of surrounding properties, and much more.
How can property appraisal help a home buyer?
Investing in your dream house brings along a lot of emotions connected to it. If a buyer likes your property and pictures themselves living the rest of their life in it, they may even agree to pay more than the property’s worth. However, this scenario can sometimes prove to be fraudulent as sellers may ask for any undue amount for the property much higher than its actual worth.
On the other hand, financial institutes use an unbiased approach while evaluating your property. Post residential appraisals, if the demanded price of the property is higher than its actual worth, as stated by the property appraiser, the transaction will certainly not take place. The buyer and seller can then re-negotiate to agree on a fair price. In some cases, if the seller denies it, it will be best for the buyer to move away from the deal and look for another one.
Who bears the cost of a residential appraisal?
Although financial institutes hire certified property appraisers to conduct property valuation, they may make the borrower bear the cost. While the loan application of a borrower is processed, the property evaluation fees have to be paid by them.
Can a residential appraisal impact your home loan application?
After the residential appraisal process is complete, the banks decide to lend you some percentage of the value, which depends on the factors like:
- Loan-to-value ratio
- Borrower’s repayment capacity
- Borrower’s monthly income and expenditure
Be sure that you will not be offered the complete value of the property as a loan amount. Financial institutes usually provide 80% of the property’s worth, and you are required to arrange the rest 20% from other sources.
What if the buyer or seller is not satisfied with the appraised value of the property?
If the seller feels that the appraisal is unjustified or their property is worth more than the appraisal value, they might ask for another evaluation from the bank. This time, since the seller is demanding reevaluation, they have to bear the cost associated with the appraisal. In regard to the second appraisal, the banks accordingly maintain a status quo on the borrower’s home loan application.
Ensure that you do not pay more than a property’s actual worth by getting a residential property appraised before closing the deal with the seller!