How Does The Appraisal Affect Buyers?
Here’s everything buyers need to know about the appraisal process.
Once you’ve had an inspection, I recommend talking to your lender immediately about setting up the appraisal. What is an appraisal? Put simply, it is a professional third-party opinion on the value of your home. It’s important to note this is just an opinion; if you hire three different appraisers, you’ll get three different values. However, banks take this number seriously, so you should too.
As a buyer, you want the appraisal value to match what you agreed to pay.
Banks base the amount they loan you on the appraised value. Generally, an appraiser's job is to see if the number you and the seller have agreed to is justified. They look at similar homes in a certain radius that have sold as recently as possible to get a good comparison. It’s a pretty thorough process, and it covers a wide variety of features.
As a buyer, you want the appraisal value to match what you agreed to pay. If the appraised value is higher than what you’re paying, that’s good news, and nothing happens. If the appraised value is low, then you run into some issues. In this situation, the bank thinks you’re overpaying for the home, so they won’t lend you the full amount.
If this happens, don’t worry; you still have options. The first thing you should do is talk to the seller and tell them the home appraised low. Some sellers are highly motivated and willing to negotiate. Others have all the time in the world and won’t budge.
If your seller won’t change the price, you can pay the difference between the values yourself. For example, if a home appraised $10,000 less than the agreed price, you can pay the $10,000 yourself to make sure the deal goes through. If this isn’t an option for you, perhaps you can negotiate to meet the seller halfway. Either way, the difference needs to be made up somehow.
If the worst-case scenario happens, and you can’t agree to a new deal, then the loan contingency in the contract activates. This means you can leave the contract with your earnest money intact. In my experience, we can usually work something out with the seller, but it’s nice to know your risk is minimal.
If you have any questions about today’s topic or anything else related to real estate, please reach out to me via phone or email. I am always willing to help.