Whether you are buying or selling a home in Garden State, you will need to go through the New Jersey home appraisal process.
Our NJ real estate attorney at Curbelo Law is an expert in all types of real estate matters in the state of New Jersey. If you require legal advice, contact the firm immediately by calling, emailing or by scheduling an appointment at one of the offices located in Ridgewood or Newark.
Everything Should Know About a Home Appraisal In New Jersey In 2023
If a home buyer is looking to get a mortgage loan, the lender will need to make some financial decisions based on the results of a home appraisal.
Although this is a big step in most real estate transactions, many individuals are unsure of their role in the appraisal process.
Do you need help with the different types of mortgage loans available in New Jersey? In our blog you can read about what you shouldn’t do when applying for a mortgage.
What exactly Is A Home Appraisal In New Jersey?
An appraisal is an unbiased, professional opinion of property value.
- Before a lender provides a mortgage, they will require an appraisal of the home.
- Once it is made, the bank determines the amount of the loan to ensure that the mortgage does not exceed the value of the home.
An appraisal must be less than or equal to the purchase price of the house. Banks generally will not give more money than the home is worth and will only approve a loan for a home that is appraised for full sales price or more.
In this way, the house will serve as collateral in case the owner cannot pay the mortgage. If this is the case, the bank can perform a foreclosure.
Are you in a foreclosure process? Our expert is also a specialized NJ foreclosure lawyer. Do not hesitate to call us right now to let us know the facts surrounding your case.
What Is The Purpose Of The Home Appraisal?
Appraisals are intended to protect both the buyer and the mortgage lender financing the real estate transaction. Through the appraisal, the lender can obtain an objective estimate of the value of the property.
With a home estimate, you can ensure that no more than the actual value of the home will be loaned out. During the appraisal process, the appraiser looks at everything on the property. This includes:
- The condition of the internal and external structures of the property.
- Any recent or needed improvements.
- The price of comparable homes in the area.
This data provides the true value of the home, and from there, the appraiser will provide the lender with a baseline sales figure.
What Does A New Jersey Real Estate Appraisal Offer?
Lenders must rely on the appraiser’s ability to remain objective in the appraisal, as well as their ability to support each observation in their appraisal. The appraisal report includes:
- A drawing of the exterior.
- A map of the street and the circulating area.
- Photos of the outside of the house and overlooking the street.
- Report on how square footage was calculated.
- Public taxes and land records.
- Sales data in the market surrounding area.
If any of these documents are missing, it can have a great impact on the value of the home appraisal. If some information is missing in this regard, it is advisable to request another appraisal.
How Much Does A Home Appraisal Cost In New Jersey?
The cost of a home appraisal in New Jersey is around $800. However, this price can vary due to various factors, such as the value, size and condition of the property.
Who Pays For A Real Estate Appraisal In New Jersey?
In most cases, a home buyer pays a licensed home appraiser to appraise the property on behalf of the lender. The buyer pays at the time of the appraisal or adds the fee to the closing costs of a house.
The lender will select a licensed appraiser that they believe will be the best appraiser of the value of the property. Typically, this appraiser has experience building, contracting, or maintaining homes.
A licensed home appraiser typically takes at least 200 hours of coursework and must pass a state exam in order to practice in the state of New Jersey.
How Are Houses Appraised In NJ?
Appraisals are based on comparable values (or comparable homes) and the size of the property. Appraisers compare both the square footage of the home and other features (number of bedrooms, for example). These are compared to other similar properties that have been sold recently.
The evaluation process is a uniform logical method based on collecting, analyzing and processing the data into an estimate with a reasoned value. Whether doing a mass property appraisal or doing a single appraisal, the steps are the same and you should not skip any steps:
- Define the problem.
- The scope of work.
- Preliminary survey and planning.
- Data collection and analysis.
- Highest and best use analysis.
- Application of the data using the three value approaches.
- Reconciliation of the indicated values to come up with the final value estimate.
Ultimately, the appraiser will have studied all three approaches to value and will decide which one deserves more weight relative to value. Next, we will detail these processes:
Definition Of The Problem
This starts the evaluation process and contains the following tasks:
- Identify the property being appraised. This includes a legal description, address and others.
- Determine the rights to the property being appraised. Includes simple property, lease and so on.
- The purpose of the appraisal and the type of value needed for it. For example, agricultural value, market value, use value and so on.
- Appraisal date. This is the appraisal date specified in New Jersey by law.
Preliminary Planning and Survey
The following is done in this phase:
- How to allocate the time and resources to complete the task.
- Estimate the highest and best use of the property.
- Prepare an inventory of the necessary data to be collected.
Data Collection And Analysis
For this task, you need to collect and analyze three types of data:
- General information:
- Character of the neighborhood
- Trends in the economy.
- Forces affecting value.
- Specific dates:
- Site data.
- Improvement information (depreciation, square footage and others.)
- Off-Site Data.
- Comparative data:
- Annual income statements, cost manuals and market data grids.
- All sales, cost and income data that has been collected.
Highest And Best Use Analysis
The highest and best use is defined as the use that generates the highest net return for the property over a reasonable period of time. This is one of the most important steps in the entire process. In addition, there are certain questions to answer about the property in question, such as:
- Is its use physically possible?
- Do value factors provide maximum productivity?
- Is use by zoning legally allowed?
- Is its use economically feasible?
Critical data that is needed here includes vacant land sales, market trends, zoning, supply and demand factors.
Apply The Data Using The Three Value Approaches
The three approaches to value are the cost, sales comparison, and revenue approach. However, not all approaches are relevant to all properties. For example, the cost approach cannot be used to value free land since it only values improvements.
On the other hand, the sales comparison approach cannot be used for properties that are not selling (single-use properties, such as hospitals or churches). Meanwhile, the income approach is not applicable for single-family dwellings that are not rented.
Reconciliation Of The Values Indicated To Arrive At The Estimate Of The Final Value
This step examines the value indicators to arrive at all three approaches. Reconciliation is to resolve the differences, so an estimate of the final value is achieved.
For example, it may be that all three estimates are reasonably close to the estimate value, but it could also be that one or two of the estimates vary widely and only one can be trusted.
You can get more information about this in the real estate appraisal manual (PDF) provided by the official website of the state of NJ.
When Are Home Inspections And Appraisals Required?
While an appraisal and home inspection in New Jersey share some similarities, they have different purposes and goals.
- For example, home inspections are not generally required in New Jersey, but are highly recommended.
- Home appraisals, on the other hand, are necessary when a buyer applies for a mortgage loan to finance the purchase of a property.
What Is The Difference Between A Property Appraisal And An Inspection?
The main differences between these two procedures are:
- A home inspection is a comprehensive and non-invasive evaluation of the general condition of the property. This process is defined as an objective visual examination regarding the physical structure and systems of the home, according to the American Society of Home Inspectors (ASHI).
- A home appraisal is a review of the property in which its fair market value is determined, based on current real estate market conditions. The appraiser prepares a comprehensive report including sales data to support the value.
In short, the goal of the home inspection is to assess the condition of the property, while the home appraisal is to determine the value of the property.
Of course, there are also certain similarities between the two. For example, a trained professional will assess the home both inside and out. However, the inspector is primarily concerned with the condition of the property (such as the roof and foundation), while the appraiser is primarily concerned with the market value of the home.
Are Home Appraisals And Inspections Required In New Jersey?
As discussed earlier, home inspections are generally not required in New Jersey, but are recommended. There is no law or legal requirement to make homebuyers require a home inspection when purchasing a home in New Jersey. Therefore, the inspection is optional.
Still, getting an inspection done by a professional is a worthwhile investment, especially since they cost a few hundred dollars to do.
Appraisals, on the other hand, are really necessary for buyers applying for a mortgage.
In our article dedicated to the mortgage requirements in New Jersey you can find detailed information about this financing process.
How Long Does A Home Appraisal Take In NJ?
Once the mortgage lender orders a professional third-party appraisal, it typically takes up to 48 hours for the appraiser to schedule an appraisal visit. However, the appraisal appointment date may take longer depending on the availability of the owner and the appraiser.
The internal and external inspection of the property can range from 20 minutes to 3 hours or more.
The process for reviewing comps where the appraiser will pull comparable homes to include in your appraisal typically takes 15-20 minutes.
Finally, the appraiser compiles their findings into a report that is usually about 10 pages long. This report usually takes 2-10 days.
What Can Affect A New Jersey Home Appraisal?
There are a few factors that can affect the appraised value of a property in New Jersey. The most common reasons include:
- Home location.
- General conditions of the interior and exterior.
- Comparable prices in the neighborhood or city.
- Real estate market conditions.
What Should Be Done To Prepare For A Home Appraisal?
In addition to cleaning your home and making sure it looks presentable, there are a few ways you can prepare your home. These are:
- Inform the appraiser of any improvements that have been made to the property.
- Make sure things work correctly. For example, the garage, the doorbells, the security system and so on.
- Detail the most recent kitchen or bathroom remodel.
- Do some research on the values of other houses in the area.
- Make the appraiser aware of quality schools, surrounding parks, and other positive details of the location.
- Detail any installation of new safety equipment.
Elements That Can Help Increase The Value Of The Property
Some things that can help increase the value of the property would be to:
- Replace leaking windows.
- Update the lighting.
- Upgrading the siding or painting the exterior and interior of the home.
- Replace the vanity in the bathroom or the countertops in the kitchen.
Elements That Won’t Help In order to Increase The Value Of The Property
Investments in a basement to create a cozy den or a children’s playroom won’t give you a return. The individuals do not live in the basement, so they are not part of the overall square footage of the home.
Another area where you don’t get much value is landscaping. However, a cluttered patio can detract.
Damage to the foundation, driveway, windows, roof, or signs of mold decrease the value of the home.
Do Appraisers Inspect The Attic?
New Jersey home appraisers will also look at attics. However, it is a quick observation.
Can A Messy House Affect The Appraisal?
Clutter usually won’t affect the home’s appraisal. However, if the clutter begins to affect the structure of the home or damage certain features (such as floors or walls) the value of the property can be affected.
Considerations To Take Into Account About A Real Estate Appraisal
During the appraisal process, it is common for the value of the home to be higher or lower than the sales price.
- If the appraisal is higher than the sale price, this will benefit the buyer.
- Buyers have certain options in the future, such as asking the seller to lower the sale price to match the appraised price or paying the difference.
In our article on how to sell property in New Jersey, you have extensive information on the subject.
If the seller fails to perform, or the buyer is bound by contract to continue at the original selling price, the buyer may:
- Offer an increase in the initial payment. This way, buyers won’t be borrowing as much money and can still be approved by a lender.
- Agree to pay mortgage insurance. Borrowers who finance more than 80% of the purchase price of a home will need to have mortgage insurance. This monthly payment will be added to the regular mortgage payment.
In the event that the above options do not resolve the issue, both buyers and sellers can dispute the appraisal figure.
How Can Curbelo Law Help With A New Jersey Home Appraisal?
Real estate inspections and appraisals can provide valuable information about the property. However, this process can be complex for first-time homebuyers or buyers in general.
Buying a home is a huge investment, so you need to know as much as you can about the property before you buy it. This is the main reason they are inspected.
An appraisal is a critical part of any real estate sale. Therefore, it is necessary to know the process and understand the options that can save a big headache later.
The experienced team at Curbelo Law can help you appeal unfair property tax and commercial real estate and lease assessments.