A significant step in that approach is real estate appraisal or property appraisal. Before approving house loan applications, banks use a variety of ways to assess a borrower’s creditworthiness. Because the value of the property is so important in a house loan, they do many checks on the unit in issue to determine its fair market value. 

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The bank will determine whether or not to give you money, as well as the amount of the loan and the payback period, based on these considerations. A significant step in that approach is real estate appraisal or property appraisal.

What is the definition of real estate appraisal?

Real estate appraisal is an unbiased method of determining the genuine worth of a property under current conditions. While a seller’s property is generally valued with a lot of prejudice, a buyer’s property may be valued lower due to his preconceived beliefs. In such a case, it is critical to agree at a contract price that is fair to all parties involved, including the buyer, seller, and bank. To do this, financial institutions use a methodical strategy when processing house loan applications to obtain information regarding the property’s true value.

Because the property against which the loan is taken is secured by the asset in issue, home loans are classified as secured loans. If the borrower defaults, the bank will be able to sell the property and recoup its losses. As a result, appraising the property for which the bank is providing financing becomes incredibly important for financial institutions. They need to know how much money they could obtain for the property if they sold it on the open market. Real estate appraisal or property valuation is the process through which they determine the property’s fair market worth.

Appraisal techniques for real estate

Real estate appraisers use one of two methodologies to determine the market value of a property:

The appraiser uses the sales comparison approach to compare the stated price of the property in question to previous property transactions in the area. Examining the sales deed registration data accessible at the sub-office, registrar’s multiple listing service databases. Or third-party websites might provide this information.

The evaluator determines the property’s present worth by estimating the cost of rebuilding the property from the ground up in the event that the existing structure is destroyed. To arrive at a final property valuation. The value of the land will be added to this cost.

What happens during a property appraisal?

The bank dispatches technical and legal specialists to physically inspect the property and generate an appraisal report based on a number of variables, including the following:

Size

Age \Map

Location

Issues and structural status

Level of decline in construction quality

Notes regarding the neighbourhood in which the property is located

Market developments

Value at the moment

Prices of comparable houses in the area

The value of improvements and their estimated degradation lifespans

Costs of renting

Expenses of identical residences that can be predicted

While the general tidiness of the home is beneficial in showcasing it. Keep in mind that it has no direct bearing on the property worth. The structure of the property will be reflected in how it has been maintained throughout time. And this will undoubtedly have an impact on the appraiser’s decision to assign a value to the property.

Who foots the bill for a property appraisal?

While banks engage impartial and well-known property appraisers to conduct property appraisals, the borrower is responsible for the costs. Under the heading of ‘legal and technical valuation,’ banks often charge a fixed fee. Charges for this, which the applicant must pay while his house loan application is being processed. May vary from bank to bank but commonly range from Rs 5,000 to Rs 10,000.

What effect does a property appraisal have on your mortgage application?

The bank will decide to lend you a particular proportion of the value stated following the appraisal procedure, depending on the loan-to-value ratio and the borrower’s repayment capabilities. The majority of Indian banks give house loans of up to 80% of the property value, as determined by a property evaluation. For example, if the property’s assessed worth is Rs 1 crore, a bank with an LTV ratio of 80% will lend you Rs 80 lakhs as a house loan, with the remaining money coming from your own resources.

What role does a property appraisal play in the house buying process?

Despite the enormous monetary implications, buying a house is frequently a profoundly emotional choice. As a result, if a buyer likes a home a lot, he or she may agree to pay more than the property is worth. Financial institutions, on the other hand. Examine a property using a “no-nonsense approach.” It is not worth completing the purchase. If the asking price for the property is significantly more than its true worth. As determined by the property appraiser. In this instance, the buyer should renegotiate the arrangement with the seller to bring the prices down to their reasonable worth. If the seller refuses, it is in your best interests to walk away from the transaction.

Using your own funds to boost the down payment on such a home may not be a wise idea. Since this might lead to a vicious cycle of overvaluation. If you tried to sell this house again in the future. It would be valued lower than the price you quoted.

What if the evaluated value does not meet your expectations?

If the seller believes the prior assessment was flawed and failed to capture the important features of the property when assigning a value. He may request another appraisal from the bank. The seller, on the other hand, will have to pay the bank for this. The bank will also keep the borrower’s home loan application on hold until the second appraisal is completed.

Buyers and sellers should be aware of the following general guidelines.

Both the buyer and the seller should research previous home sales in the region. This will assist the seller in quoting a realistic price. And the buyer will be equipped with knowledge of the local property market. Leaving no room for misinformation on the seller’s or broker’s side.

When the bank sends its legal and technical valuation team to perform the property evaluation, both parties must be present. For the appraiser’s convenience, the seller must make all property-related paperwork available at this time.

Asking a price that is greater than the market rate will diminish the seller’s chances of completing the transaction fast. Paying the asking price for such a property may be detrimental to the buyer. Since he will be in possession of an expensive asset for which he may not be able to recoup his investment.

What if the agreement doesn’t work out?

Before submitting an application to a bank to complete a home loan request. The buyer and seller have previously signed a contract to sell. Because the agreement to sell is a legal instrument that binds all parties involved in the transaction. The buyer may be forced to pay a financial penalty if the sale falls through. Because the buyer has little influence over how the bank’s personnel evaluates the property. A condition in the sale agreement must state that the buyer will only be able to seal the purchase. If the bank agrees to give him the money he needs. To add to the clarity, the technical evaluation clause in the agreement might be included.

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