Appraisals are a polarizing topic when it comes to purchasing property, especially when it comes to investing. While it’s true that an appraisal may come in at a value that is lower than expected or desired, in the end, it helps both borrowers and lenders make informed decisions when it comes to funding. Additionally, an appraisal at the beginning of the lending process will help investors during their exit strategy.
In this edition of our blog, we’ll go over what an appraisal is, what impacts the appraisal process, and why it’s beneficial to always have an appraisal completed on a property.
Appraisals: Why Do They Matter?
Appraisals are required for most lenders to protect both the lender and the borrower. But what exactly is an appraisal, what does it measure, and why are they important?
What are Appraisals, and What are They Measuring?
If you’ve never purchased a property before, chances are you’ve never heard of an appraisal. Most lenders will require one in order to supply funding for loans and mortgages, and many borrowers are often unaware or wary of obtaining them.
In short, an appraisal is an unbiased assessment of a property’s value. They take into account features of a property that effect the general condition. According to Forbes, these can include a house’s location, quality of construction, age, number of bedrooms and bathrooms, the design and curb appeal, type of heating and cooling, square footage, storage, and recent renovations.
When an appraiser looks at these items, they are measured against comparable houses in the area that have recently sold. This way, an accurate judgement can be made for the value of the home.
Why Should I Want an Appraisal?
Simply put, appraisals are essential for accurately pricing your property in order to protect both the lender and the borrower. While you may walk into a deal assuming a property is valued at a specific number, the realistic value of the home might be completely off.
Because of this, lenders will often require an appraisal prior to funding your investment. Licensed appraisers are third parties with no stake in the value of the home. They take into account the current attributes of the property to provide an as-is number. Then, given any changes and renovations that are planned for the property, they provide an after-repair value.
When it comes to real estate investing, as opposed to mortgages for owner-occupied residences, the numbers can make or break your deal. The good news, however, is that it will help you as an investor understand the realistic gains or losses you stand to make from purchasing a property.
Additionally, upon getting ready to sell your investment, your original appraisal at the time of funding can act as a rebuttal tool for your transaction in the event of the exit appraisal coming in lower than expected. Just as you don’t want to purchase a property at a value higher than its worth, you wouldn’t want to sell your property at a lower value.
About Bay Mountain Capital:
Bay Mountain Capital has been in business for more than a decade, closing approximately 2,000 loans. We specialize in financing all types of residential and commercial property investments throughout Texas and Georgia. Using common sense and value-added approach, we strive to incorporate these principles into our underwriting and closing processes.
As a direct lender, Bay Mountain Capital can close a loan within one day after receiving a complete file and clear title. The process generally takes two weeks for a residential loan but can be accelerated where circumstances require it.
We are primarily an asset-based lender, which means that qualification requirements are limited. Our rates and fees are among the lowest in the industry.