When and Why Do You Need a Formal Home Appraisal?
Many homeowners are often curious about the value of their home. Websites like Zillow and Redfin can give you some sense of what your home is worth, but they have quite a bit of room for error especially since they use algorithms instead of actually evaluating your house on an individual basis to determine its worth. Estimates from Zillow and Redfin also cannot be used as a legitimate valuation for mortgage, tax or legal purposes.
A formal home appraisal is an unbiased professional opinion of a home’s value. The professional will often perform an actual site visit to the property and evaluate both the inside and outside of the home. They will also consider data about what other comparable homes are selling for in your area and other current market trends.
In the mortgage context, when you are purchasing a home, lenders want to ensure that you are not over-borrowing beyond the home’s actual value. The bank wants to protect itself should the borrow default on the loan. An appraisal can drastically impact homebuyers in the Bay Area where competition and bidding can push the purchase price of the home far beyond the appraisal value such that traditional mortgage products may be unavailable. The buyer may be forced to make up the difference or back out of the deal. A bank may also request and order an appraisal to protect against over-borrowing if you are looking to take out a new line of equity on your home.
Appraisals are also often a requirement when a homeowner dies. First, an appraisal may be required by the IRS to determine if any estate tax may be owed. Additionally, if a beneficiary of the homeowner would like to keep the property for an indefinite period of time, they need a good understanding of the home’s value on the date of death of the homeowner in order to calculate gain or loss if they sell the property at a future date for tax purposes. Finally, if real property must be probated (the court process required to administer an estate), then the Court will require a formal appraisal as part of that process.
Ensuring that you know when it important to have a formal home appraisal can help you and your family at all points of life—whether you are buying a home, or your family is administering your trust or estate at your death. If you have additional questions about a formal home appraisal and how it may be used in your estate plan, please call our office at (408) 286-2122 to set some time for a complimentary consultation to discuss your needs further.
All materials have been prepared for general information purposes only to permit you to learn more about our firm, our services and the experience of our attorneys. The information presented is not legal advice, is not to be acted on as such, and may be subject to change without notice