Understanding Home Appraisals
Becoming a homeowner can be a confusing process. Between buying a home, financing a home, and insuring a home there are seemingly endless numbers of acronyms of importance. There is enough jargon and insider knowledge to keep a new homeowner’s head spinning. To add to the confusion is the fact that each of these industries use similar terms in different ways. Take for example appraisals – you need an appraisal for your house if you want home insurance and you need an appraisal for your house if you want a mortgage. Are home insurance appraisals the same thing as home buyer appraisals? Do homeowners need both of them? Are these the same as insurance claims appraisals? The team at Streamline Insurance is here to walk you through the differences between these various appraisals and which one you need for your homeowners insurance policy.
What is a Home Buyer Appraisal?
Quit simply, a home appraisal is an unbiased professional opinion about the value of a home. There are a few things that go into a home appraisal. Home appraisers conduct a visual inspection of the home to help determine its value. They look at the condition of the home, amenities and features, as well as the square footage and floor plan. Appraisers then look at the value of comparable homes in the neighborhood and real estate trends in the area. All of this information is combined to come up with the value of the home.
Home appraisals are helpful for mainly two types of peoples; lenders and home buyers. Mortgage lenders sometimes ask for home appraisals for home purchases and often require them for a mortgage refinance. Lenders want to know the value of a home before they provide a new mortgage or refinance a mortgage in case they have to foreclose. If a homeowner falls behind on their mortgage payments, they need to make sure the value of the home matches the loan. This is a way for lenders to ensure that they do not lose significant money on a mortgage or refinance.
Homebuyers can also benefit from getting a home appraisal. Buying a home is the largest investment that most people will make, so you want to make sure it is worth it. First, home appraisals will help you determine how large of a home loan you need. Second, the value of the home can be helpful during price negotiations with the seller. It is kind of like knowing the Kelly Blue Book value of a car when you are car shopping. This is especially important in today’s real estate market where home prices have increased dramatically. Many home sellers are trying to take advantage of the fact that there are bidding wars on their homes and increasing the asking price. Home appraisals are a way to check back on this.
What is an Insurance Appraisal?
Insurance appraisals are slightly different from home buyer appraisals or the type you need for when you get a mortgage. An insurance appraisal is used to help insurance companies prepare for potential claims for a homeowners policy. Real estate appraisals are conscerned with the resale value of a home. Insurance appraisals are concerned with the replacement value of a home. If a policyholder has a claim and needs part of their house to be repaired or replaced, how much will that cost? This has to do with entirely separate market forces than the other appraisals are conscerned with. Replacement value is more about how much building materials and labor cost.
What are Insurance Claims Appraisals?
An insurance claims appraisal is something that a policyholder can ask for if they do not feel an insurer’s offer for a filed claim is sufficient. For instance, if a homeowner has to file a hurricane claim after damage from a major storm, the insurance company will send out an appraiser. Their appraiser will assess the amount of damage and how much the insurer is responsible for based on the policy coverage limits. If the policyholder disagrees with the appraisal amount from the insurer, they can exercise the appraisal clause of their homeowners policy. This allows the policholder to have an independent appraiser perform an appraisal of their own. Insurance claims appraisals differ from ther types of appraisals because they are primarily concerned with appraising how much damage is ocurred. From there, they are then responsible for appraising how much it would cost to replace or repair the damage.
Final Thoughts
Understanding the nuances of home appraisals can be difficult for homeowners. Especially because appraisals mean different things when you get a mortgage, get home insurance, or file a claim. Chances are that you are not a real estate, mortgage, or insurance professional, so it is not your job to keep all these types of appraisals clear in your mind. That is our job. One of the benefits of working with a true insurance professional, like the insurance brokers at Streamline Insurance is the expertise. We will educate you about everything related to your policy, from selecting coverage to filing claims – we are here to support you as long as you’re a client. If you have questions about your current policy or would like to get a quote on another policy, contact us. Our insurance agents are ready to help you today.
