Understanding real estate terms like home appraisal and home inspection can get a little confusing at times. They are very different in their approach and what they are used for in real estate. We hope that if you need a Rexburg home appraisal in the future, this information will help you understand what it is.
What Is A Home Appraisal
Unlike a home inspection, which is usually ordered by a home buyer to protect against costly maintenance and defect mediation, a home appraisal is ordered by lenders. When a bank considers giving you a loan, they want to know the value of the property you are going to buy with their money. It is only natural that the bank would want to make sure that you aren't paying someone $200,000 for a property that only has a value of $100,000. Why? Because the loan is secured with the property as collateral, meaning if at some point you default on the loan, the bank can sell the property to recoup their money. The house is held as collateral against the loan.
What Is An Appraiser
Lenders need a way of coming up with a value for a property so they can determine how much money they will loan. Since most of the decision makers for lending are usually far from the properties they are lending money for, they need local people who are trained in real estate appraisal to go out and create an appraisal for them. In most cases today, lenders will contact an appraisal management company who will then send out an independent appraiser. Lenders used to contact the appraisers directly, but due to new laws, lenders are prohibited to contact appraisers directly in most cases. This is a much contested process, but for the time being, anybody that want to work with Fannie Mae or Freddie Mac lenders must play by the rules.
After the Appraisal
You can sit back and relax on this one. This is all in the hands of the lender you choose for your loan. They will order the appraisal, evaluate your financial strength, and then determine how much they are willing to loan you to purchase the property. If the appraisal comes in at or near the offer price of the house, most likely your deal is going to go through and you will be a happy home owner. On the other hand, sometimes the appraisal comes in lower than the offered price. In this case, the seller either needs to lower the price or you will need to come up with a larger down payment to make up the difference.