Supposedly you're in the process of buying a house, and your offer was accepted, among several important steps to follow, what do you think one of them would be? Yes...home valuation.
As part of the process, the mortgage lender that you engaged will order a property valuation of the property you wish to buy.
What is a property valuation?
Property valuation is the workmanship of a licensed or certified valuer and contains a thorough, unbiased verification of the fair market value of the property concerned. This value, by standard, reflects the purchase price.
Generally speaking, a valuation is an objective report on the true worth of a home or property within the fair market. It is prepared by a licensed and professional valuer.
As a rule, valuations must ensure the property buyer, seller and mortgage lender receive a comprehensive and accurate value of the real estate in question.
In a traditional home buying process, or property transaction, the buyer is required to choose both a real estate agent and a suitable lender.
Contrarily, the home buyer cannot choose a valuer. This responsibility will fall on the lender's shoulders, and usually orchestrates independence between the seller and the buyer.
It's a must that a lender is in constant communication with a valuer. As it is highly critical at this stage for the lender to have vital information on-hand; in order to determine the exact value of the property, before a loan decision can be made.
However, in order to avoid excessive influence on the valuer, there are several safeguards in place for lenders to abide by. For instance, the person in a lending institution that's responsible for recommending the valuer, will not be the one giving out the loan once all else has been satisfied, and given thumbs up.
Why is a property valuation important to a home buying process?
The valuation process, per se, unequivocally serves the home buying process by culminating into the precise property value. In most cases, this usually mirrors the fair market value.
In this situation, property valuation is essential to the lender. It guarantees that there's no need to allow the buyer to borrow more, than what the property is actually worth on the market.
Comparatively, while the valuation prevents the homebuyer from venturing into a certain doom, it also protects the buyer from overpayment.
But as important as the valuation itself, most buyers and sellers still misunderstand the true purpose of valuation, how it is pursued and the kind of standards that corroborate its effectiveness.
Who orders and pays for the valuation?
In any given case in a home buying process, the buyer meets the cost of the valuation, even though the lender orders for it to be done.
In other words, the lender orders the valuation, and with it a licensed valuer goes along for an analysis report. Whereas the homebuyer meets the overall costs - outside of escrow.
Valuers are bound by what can be termed as a “valuer-client relationship”, which exists between the valuer and the lender.
What is the difference between a valuation and an inspection?
While a valuer looks at providing an objective and impartial analysis that enables the lender, in particular, to understand the real value of the property, the home inspector - under oath to the homebuyer - performs a visual examination of the property's physical structure; this examination ensures structural integrity of the property.
For instance, a valuer evaluates the home in order to establish a valid opinion of the home's market value. While a home inspector will evaluate the home to determine whether or not it is liveable, based on its compliance to industry regulations and policies.
Factors that impact the valuation process?
The valuation process is all about intelligent estimations based on several factors. The following will elaborate on this matter:
Comparable properties that have sold recently, especially those that are similar in size and location to the home you are buying. Their sale prices are usually the most important factor.
General condition and age of the home
Location of the home, including views or other remarkable features
Size and features of the home and property, including the number of bedrooms and baths
Major structural improvements such as additions and remodeled rooms
Features and amenities such as swimming pools and wood flooring
How can you improve your home valuation process?
Lender - where there are questions or concerns about the valuation report, there are concrete steps to take by the lender, such as:
Proffering additional comps for valuers to review;
Request valuers to correct any error in the appraisal reports; and,
Seek further clarification on the conclusion of a valuation, if need be.
Buyer - as a rule of thumb, a homebuyer can ensure the valuation process works in their favor; where the valuation report must carefully outline his/her property rights, in terms of fair market value. If portions of the report are flawed, the homebuyer has every right to voice his/her concern.
Seller - Valuers will want to check for important upgrades to the property, especially improvements to the important features. As a seller, it would be an excellent idea to give the valuers a list of all the recent upgrades to the property. This will ensure that nothing that can impact the value of the property in any way isn't left out of the valuation report.
How much does a home valuation cost?
A valuation fee will normally encapsulate the cost of engaging a licensed valuer to assess a home, and come up with an objective value.
It's also worth remembering that the cost of a valuation process will be in tandem with the real value of the property. For this purpose, the more upscale and sizable the property, the more the valuation cost will be.
The bottom line
An objective and accurate property valuation goes as far as officiating a smooth and successful real estate transaction.
It really doesn't matter if you're the seller, buyer or lender in this case. What matters most is to remain informed throughout the valuation process, as to what significant aspects of the property were considered during the process.
Of course, we can't deny that there are misunderstandings of the valuation process floating around, still, especially on how they are ordered and why they're important to the buying process. But with a perfect grasp of their purpose and how they serve the buying process with distinctinction, these misconceptions will evaporate.
This article is meant for informational purposes only and is not intended to be construed as financial, or investment advice. Hausples encourages you to reach out for professional help regarding your own real estate situation.