5 Feb, 2024
Mortgage Broker Comments Off on Understand the Appraisal Process & Deep Knowledge of Property Valuation (An explanation of how appraisals impact the mortgage process.)

When it comes to determining the value of your property, you might encounter terms like appraisals and valuations. Let’s take a look at the differences between these two processes and explore how they impact the mortgage journey.

Appraisals: Your Informal Property Price Guide

An appraisal is an informal report on the likely price your home might fetch at market, if you are looking to sell. They are more often than not, provided at no charge. Unlike valuations, which are formal reports conducted by certified valuers, appraisals are more casual assessments often performed by local real estate professionals.
What sets them apart is the level of formality and cost. Appraisals are generally free, courtesy of your local real estate agent, offering an estimate based on the agent’s knowledge of the local area and recent sales history. It’s a useful starting point when considering selling your property, providing insights into market value and helping your agent set realistic expectations, based on similar recent sales in the area.

Valuations: The Formal Property Report

On the flip side, valuations are the serious players in the property value game. Conducted by certified valuers, valuations involve a detailed analysis of various factors contributing to a property’s worth. This includes location, type, size, condition, structural aspects, encumbrances,risks and even local zoning.
While valuations come with a price tag due to their in-depth nature, they are critical for lenders when determining property value during home purchases and refinancing. Lenders prefer valuations for their accuracy, employing a conservative approach to align with the cautious nature of mortgage transactions.

Refinancing and Valuations: A Necessary Duo

If you’re considering refinancing your home loan, a fresh valuation is likely in the cards. Refinancing involves replacing your existing loan with a new one, and both your financial situation and property value need reassessment. Valuations can take several forms, from an auto valuation provided by a software program based purely on recent, similar sales (often used when your loan to value ratio is low, which of course means less risk to the Lender), Desktop valuation – so still done from a computer but with human intervention or a full valuation, where a licenced valuer will visit the property and carry out a detailed inspection and assessment.
Lenders typically organize valuations for refinancing and the costs are more often than not, borne by the lender. Some small Lenders, however, will charge an upfront valuation fee, but will still want to use their own chosen valuer. This fee may range from $300 to $600 in a metro area.

What Valuers Look For: Unveiling the Valuation Process

When seeking a valuation for refinancing, a property owner usually hopes for an increased property value. Valuers consider various aspects, including local market trends, property features, size, condition, accessibility, and potential repairs or renovations needed and even current market risks.

Property Appraisals: An important Step Prior to Selling

Now, let’s talk about property appraisals. Unlike valuations, appraisals are open for anyone to participate in. You can either perform a self-appraisal using online tools or engage a local real estate agent to assess recent sales data and provide an estimated property value.
Appraisals consider factors like local sales data, home features, size, and the overall appeal of your property. They serve as a preliminary step, guiding you on potential sale prices. It is wise to have two or three different Realtors come in and provide you with an appraisal prior to listing your home. Three is a great number because you will have several opinions.

Conclusion: Navigating Your Property’s Worth

In the realm of property transactions, understanding the difference between appraisals and valuations is vital. Appraisals offer an informal idea of , while valuations provide a comprehensive and formal assessment. Whether you’re exploring a potential sale or navigating refinancing, knowing when to play the appraisal game or opt for a formal valuation empowers you in your property journey.