U.S. home prices rose by 0.10 percent in July according to the S&P Case-Shiller Housing Market Index. San Francisco, California edged past Denver Colorado with a year-over-year price increase of 10.40 percent as compared to Denverâs reading of 10.30 percent. All year-over-readings for the 20-City Home Price Index posted gains, but Washington, D.C. showed the lowest year-over0-year growth rate at 1.70 percent. Chicago, Illinois and New York City followed closely with year-over-year readings of 1.80 percent and 1.90 percent respectively.
This is part of an ongoing series in which we answer common questions among home buyers in Washington State. Today’s question: Is a home appraisal required for home buyers in Washington?
The short answer: An appraisal is usually required when a borrower uses a mortgage loan to buy a house. Buyers who pay cash don’t necessarily need an appraisal, but they can have one performed if they choose. A small percentage of home loans might qualify for an automated alternative to the traditional appraisal, which can expedite the process and save the buyer money.
The Purpose and Process of Home Appraisals
Once you understand the basic purpose of a home appraisal, you’ll realize why they are almost always required for mortgage loans in Washington state.
The primary objective is to determine the current market value of the house – and also its resale potential. To accomplish this, the home appraiser will evaluate recent sales in the area that are similar to the home being purchased. The appraiser will also visit the “subject property” to see if it has any value-adding features that might put it above the comparable sales, in terms of value.
Appraisals Are Usually Required, with A Few Exceptions
Mortgage lenders in Washington require home appraisals for most loans that are made, and for a couple of reasons.
Sometimes these requirements “trickle down” from secondary authorities such as Freddie Mac, Fannie Mae, and the Federal Housing Administration. Lenders also want to ensure that the home being purchased is worth the amount the buyer has agreed to pay.
For all of the reasons stated above, a home appraisal is usually required for Washington home buyers who use mortgage loans to finance their purchase. This is true for conventional and FHA loans alike.
Exceptions to the Rule
There are some mortgage scenarios where a home appraisal might not be required.
For instance, in August 2017, Freddie Mac announced that some buyers might be eligible for an “automated appraisal alternative.” This would essentially bypass the traditional on-site home appraisal, and in some cases it could save borrowers money and expedite the closing process.
But this is only possible when the applicable underwriting engine allows it, and that’s generally a small percentage of loans. So while some home buyers in Washington might benefit from this alternative, the vast majority will still be required to have an appraisal.
How It’s Different from a Home Inspection
In closing, we should point out the distinction between a home appraisal and an inspection. These commonly confused procedures are actually two different things entirely. One focuses on the value of the property, while the other focuses on the condition of the house.
- A home appraisal is intended to determine the current market value of the property, partly to ensure that the mortgage loan does not exceed the true value of the property being purchased.
- A home inspection is performed to evaluate the condition of the home, including the electrical system, plumbing, roof, foundation, etc. The home inspection is purely for the buyer’s benefit, to give the buyer more insight into the true condition of the property.
As we’ve written in a separate article, home inspections are usually not required for mortgage loans in Washington State. With that being said, buyers can certainly benefit from having a thorough property inspection before purchasing a house.