A house appraisal can be concerning whether you are buying or selling a home. The licensed appraiser will check the property to work out the fair market value. This can make both buyers and sellers very nervous. Will the appraiser assess the home to be worth what is expected? Will the appraisal come in low? What happens then? These are the kinds of questions that can keep sellers and buyers from sleeping soundly at night.
Let's take a look at the things you need to know when you are going through the home appraisal stage in a real estate transaction. The more you know about house appraisals, the better when you are buying or selling a home. If you are buying a house for the first time, much of this will probably be foreign to you.
When you require a mortgage to buy your home, the lender will want to be sure that the home is worth the amount you have offered for it. Lenders will normally arrange appraisals for homes after buyers have made their offers to protect themselves should the borrower default. Some of the most frequently asked homebuyer questions relate to home values.
If your appraisal value is found to be lower than your offer amount, as a buyer, you can choose from the following options:
Fighting a low home appraisal value is not easy. You will need to prove either that the appraiser has made an error in their appraisal report or that they did not figure the value correctly. Based on experience, this is not a fight that is easy to win. It is kind of like telling an attorney they are wrong - most of the time, they will look at you like you have two heads.
What you need to know, however, is that appraisers are human just like the rest of us. They can and do make mistakes. When disputing an appraisal, you will need to get a copy of the report. The first thing you'll need to check is if there are blatant errors. For example, did the appraiser measure the square footage of the home correctly? Are the number of reported bedrooms and baths correct? Is the lot size accurate?
Sometimes there are clerical mistakes in an appraisal that can throw off the value. If there are no mistakes such as these, you will need to look at what the appraiser used for comparable sales. Are they really comparable? One of the more common areas where values can get distorted is when an appraiser does not know the area well. They may assign the location of your home a lower value than it should receive.
The next thing you will want to check is how the appraiser adjusted up and down based on the comparable sales. For example, did the appraiser take into consideration that you have a brand new kitchen and new baths? Did the appraisal take this into account? These are the kind of things you need to look for to make your case.
It usually takes a very skilled real estate agent to challenge a home appraisal successfully.
Another option when the appraised value does not come in where expected is to ask the seller to meet the appraisal price. When the fair market value of the home being appraised is less than the offer, the seller might be willing to reduce the price.
However, if you are buying a home in a hot market, this might not be an option. If the seller has access to more offers or expects to find another buyer easily, they won't want to lower their price. Quite often, this is the case.
If the value has been assessed to be less than your offer amount, the lender may not loan the full amount you need. As a buyer, you do have the option to make up the difference if you can find another source of money.
This will mean increasing your down payment amount to cover the difference, though getting another loan probably won't be allowed by your lender.
Sometimes the best way of working things out when it comes to disputes is a compromise. A home appraisal is certainly one area where this could happen. When an appraisal comes in low, it could mean a combination of the two things mentioned above happening. The seller would drop the price some, and the buyer would come up with a larger down payment.
Doing both of these things could be a win-win for both parties and make the lender happy in the process.
If you can't negotiate a new price with the seller or aren't able to make up the difference, the other option is to back out. An appraisal contingency will allow you to walk away from the deal without losing your earnest money deposit.
There are many things a first-time homebuyer should know, and protecting their deposit is certainly one of them. When buying your first house, you certainly can't afford to lose any money.
When selling your home, if it does not appraise and the buyer walks away, you may need to re-think how you're approaching the sale. You can do some things as a seller to improve the chances of getting the appraisal value you expect.
The appraisal is one of the steps in selling a home, so unless you find a cash buyer, this is something you will be forced to deal with.
The appraiser will look at similar properties that have sold recently in your area to work out the fair market value; you can use this information as well to find out how your home compares. This could give you a few ideas you need to improve in your own home to get the evaluation you want.
Along with any minor repair jobs you know need fixing, you can do some improvements to make your home more appealing as well. A fresh coat of paint, or the replacement of old fixtures, could make significant improvements to the appeal of your home. These changes won't cost much to do but should add to your home's good impression to the appraiser.
Walk around your home and try to make a list of all the little things you can do to improve the appearance. It would be best if you tried to be as impartial as possible in this to make the changes necessary to improve the appraised value.
The first impression someone has of your home will guide their overall views on the property. If your home has a lot of curb appeal, you can expect a higher fair market value. If everything looks good on the outside, they will naturally expect that things are correct inside too.
You should have any paperwork ready to prove the upgrades you have made to your home. Showing the appraiser the documentation for the work you've had done, as well as any permits, will help show that your home is worth more. Sometimes appraisers have no idea what improvements have been made if the real estate agent does a poor job communicating them.
Improvements should be emphasized in the multiple listing service and in marketing material, but sometimes they are not.
Make sure your home is looking spotless before the appraiser arrives. Ensure the interior is cleaned, as well as tidying up the exterior and mowing the lawn. There is some subjectivity involved in the assessment, so a clean home is more likely to get a higher fair market value from the appraiser.
When the house appraisal is taking place, don't be tempted to follow the appraiser around. You might think you are helping by pointing out the improvements you’ve made, but it might only end up annoying them or getting in their way.
By all means, make yourself available to answer any questions they might have, but let them do their job without interference.
The appraisal is a big step in a real estate transaction for sellers, buyers, real estate agents, and lenders alike. Everyone wants the appraisal to go smoothly, but that is not always the case. Whether you are buying or selling, you need to be prepared in the event the appraisal does not turn out as expected.
Hopefully, you have found these appraisal tips to be useful.