Appraisals are a VERY important part of the home buying process. Unfortunately, the appraisal process is misunderstood by a majority of new home buyers, as well as some seasoned real estate professionals.
Most believe that the buyer is supposed to hire the appraiser. The appraiser then determines the price of the house, taking into account the dollar for dollar cost of any renovations or other improvements. After checking the home for any defects, the appraiser can set the price based on the overall square footage of the home.
All of that is false.
In reality, the appraiser is hired by the lender to ensure that the overall value of the home will yield a return on their investment. The appraiser works for the lender, not the buyer. Their main job is to protect the interests of the lender. If a home doesn’t have a good value for the investment, then the lender won’t get involved with that home.
Appraisers do not set the sale price of a home. They don’t care how much you end up paying for the home. They will only give an informed opinion of the current market value of the home based upon the local market value of similar homes. However, knowing this information can help you to not over pay for your home.
Appraisers are not home inspectors. Those are two very different jobs. Likewise, an investment in a home through renovation (like an updated kitchen or a pool in the back yard) can improve the value of the home. However, the value added does not always equate to the amount invested. The added value is determined by how much people are willing to pay for the added features in the current market. As an example, adding a pool into the back yard may cast $30,000 or more, but may only add $10,000 to the value of the house.
Square footage is an important part of the appraisal process, but it is only one piece of the puzzle. An old barn could be made into a 3 bedroom home and appraise for much less than a one bedroom home. The appraisal process is complex and involves many different factors.
It is important to understand the appraisal process. Especially if you are buying your first home. Don’t make the same mistakes and assumptions that other first time buyers make. You’re better than that.