Home Appraisals 101
Whether you’re looking to buy or sell a home, or even refinance your current home at a lower rate, a home appraisal is a key step to confirming the value of a property. Lenders use professional appraisers to provide an unbiased opinion on the value of a home in order to ensure that, in the event of default, the funds they lend are backed up by the property. In this way, lenders have a bit of insurance that, even in the worst-case scenario, their investment is a safe one. So, what are the major aspects of an appraisal? What are the most important factors to know about that can affect the value of a home, and what happens if an appraisal comes in lower than the agreed upon price during closing on a sale? Let’s take a closer look at the details of appraisals and their importance on property investments from both buyers’ and sellers’ perspectives.
Professional, certified appraisers take into account comparable sales, home amenities and other key, quantifiable factors. Since property condition is a factor, keeping up with necessary repairs can provide a boost to appraised value.
You may have, at some point, rushed to clean up your home to get ready for an appraisal in order to receive a quick boost in value. While it couldn’t hurt, tidiness isn’t a major factor in appraisal value. According to Investopedia, appraisal numbers are typically a sum of factors including current market trends, your home’s amenities, upkeep and maintenance, number of bedrooms and bathrooms and square footage. Another major factor to appraisals relates to recently sold comparable properties. As a result, taking the time to check out recently sold, similar homes in your neighborhood is a quick way to get a relatively close estimate when creating a list price on your home.
If you’re buying a home, expect an appraisal as part of the closing procedures. If appraised value comes in lower than the agreed-upon price, look forward to more negotiations and savings.
As a buyer, you’ve likely heard plenty about the closing costs on your mortgage, and this is one step of the home buying process where that money is applied. In exchange for several hundred dollars, you’ll get a detailed overview of your potential property outlining property conditions, comparable properties in the area, photos of the home and tax records, all of which are used to determine the property’s fair market value. In the event of a low appraisal, you’ll likely need to agree upon a lower price with the seller in order to attain financing. If the seller truly needs to get rid of the home, a low appraisal could be a great opportunity to save some money thanks to a lower asking price. After all, lenders won’t approve loans greater than the appraised value of the property.
As a seller, a low appraisal can cost you a pretty penny. If possible, perform necessary maintenance before requesting a second appraisal if you believe mistakes were made on the first attempt.
If a low appraisal disrupted your sale, there are a few avenues available to sellers that could help in adjusting the value. Start by performing needed repairs and maintenance to achieve a quick boost in value before requesting another review by a different certified home appraiser. In the event of an inexperienced appraiser, a simple reevaluation could mean the difference between selling your home for list price and losing a bundle of cash in the short-term. According to How Stuff Works, if you still believe your home’s value assessment to be inaccurate following a second review, consider filing a complaint at your state’s appraiser licensing agency. Just remember, the mortgage application of the buyer is likely on hold until your home’s value meets the contract price.
If you believe the final appraisal to be a misrepresentation of the value of your property as a seller, or if you can’t negotiate to new terms as a buyer, take advantage of the financing contingency on your offer contract to walk away from the deal.
If all else fails and no common ground can be reached based on the home appraisal, most offer contracts contain a contingency for failure to attain financing. This affords buyers the opportunity to walk away from the deal completely and without penalty if the home value estimate creates too much difference between perceived value and financing availability. In some cases, walking away from a home is the only option. If you’re unsure of how to proceed, depend on the knowledge and experience of your real estate agent to guide you through the relatively uncommon situation.
Penny W. is a writer whose interests include Leander homes for sale and playing the acoustic guitar.