6 Reasons Why Your Higher Offer Won't Win The House While cash is certainly king, there are other factors that play into a seller's decision to accept an offer. By Realtor.com,
Hey Buyers These Home Appraisal Tips Are For You
Hey, Buyers: These Home Appraisal Tips Are for You
What to expect, when to negotiate, and how to deal when things donâ€™t go your way.
Most people have deeply personal reasons for wanting to buy a home. Maybe itâ€™s the bathroom that feels like a dreamy, modern spa. Or that two-tiered deck just made for parties.
Your lender doesnâ€™t care about the freestanding tub. Or the built-in outdoor fire pit. Their only concern is that the house you buy is worth as much as the value of your mortgage.
To them, a house isnâ€™t a home. Itâ€™s collateral. (Harsh, but true.) If someday, for some reason, you canâ€™t make your mortgage payments, the lender can foreclose on the home and sell it to recoup all or some of its costs. (Even harsher, but also true.)
For that reason, a home must be valued at, or above, the agreed-upon purchase price, and this has to happen before you can close on a house. Thatâ€™s where a home appraiser comes in.
A Home Appraiser Is Neutral (Like Switzerland)
After you sign a home purchase agreement (the contract between you and the seller about the terms of the pending sale), and before your lender approves your loan, the home youâ€™re buying must pass an appraisal â€” an assessment of the propertyâ€™s value by an unbiased third party: the appraiser.
An appraiser is a state-licensed or -certified professional. Their job is to assess an opinion of value â€” Agents should make sure the appraiser has details on everything from the homeâ€™s major upgrades, like an addition, to the age of major systems and structures, like the roof and HVAC.how much a house is worth. The appraiser is on no oneâ€™s side. They donâ€™t represent you or the seller; instead, this person is a contractor chosen by your lender through an appraisal management company (AMC), a separate, neutral entity that maintains a roster of appraisers.
Appraisers survey a house in person, using five main criteria to determine the value of a home:
Additions or renovations
Recent sales of comparable homes
Be Prepared to Pay for the Appraisal â€” or to Negotiate
Generally speaking, the home buyer is responsible for paying for the appraisal â€” and the fee is typically wrapped into your closing costs. However, who pays for appraisal is negotiable. It never hurts to see if the seller is willing to cover it.
How much money are we talking about? The average professional home appraisal will run between $287 and $373, according to estimates by the home-professionals resource HomeAdvisor.com. Costs can vary depending on the If the home you want has a finished basement, donâ€™t assume itâ€™ll appraise for more because of it. Below-ground space is valued at less per square foot than space above.square footage and quirks of the house, with higher appraisal prices for larger or more unique homes.
Explore More Topics:
Appraisals Take a While, So Be Patient
Typically, a purchase agreement has a â€śhome appraisal contingencyâ€ť requiring that the appraisal be completed within 14 days of the sales contract being signed. Because it takes appraisers some time to visit your house and write a report â€” up to a week, or longer in a busy housing market â€” your lender will order the appraisal immediately after you sign the purchase agreement.
So, You Have a Valuation. Hereâ€™s What It Means â€” and What to Do Next
When the appraisal is finished, the appraiser issues a written report with his or her opinion of the value of the home. To produce the report, they use their analysis of the property and data from comparable homes, as well as review the purchase offer. The report will outline their methodology and also include photographs that theyâ€™ve taken of the property, inside and out.
You and your lender will both receive a copy of the report. Three things could happen next:
If the appraiserâ€™s valuation matches the price you and the seller agreed to for the home: Your lender will proceed to underwrite your loan. Great news: This is the final step in your loan-getting process!
If the appraiserâ€™s valuation is higher than what youâ€™re paying for the home: Congratulations! Youâ€™ve gained immediate equity. How, you ask? Letâ€™s say, for example, youâ€™re paying $200,000 for the house. If the appraiser says itâ€™s worth $250,000 â€” jackpot. Thatâ€™s an instant $50,000 in equity. (Keep in mind, this is very rare.)
If the appraisal is lower than what youâ€™ve agreed to pay for the home:Your lender wonâ€™t give you a loan for more than the appraised value. If you and the seller agreed on $200,000, for example, but the appraisal is $190,000, that creates a $10,000 shortfall. So what happens next?
Donâ€™t despair â€” not yet. If youâ€™re faced with a low appraisal, there are several ways the deal can still go through.
If an Appraisal Is Low, You Can Still Make It Work
Before we talk strategy, some reasons why appraisals come in lower than expected:
The seller overvalued the price of the home.
The appraiser isnâ€™t familiar with the neighborhood.
The appraiser overlooked pending sales data.
The appraiser had trouble An appraiser should be very familiar with the area the home is in, given that markets can vary within blocks. A good comp rule of thumb to avoid incorrect valuations: Would a buyer likely purchase the comp if the subject property wasnâ€™t available?finding comparable homes, or missed comparable homes, so they compared your home with properties outside the neighborhood.
Home prices in the area are changing so fast that the listing agentâ€™s price no longer reflects the market.
The appraiser rushed the job.
If the appraisal comes in low, your agent will offer recommendations about how to proceed. In general, your best strategy is to persuade the seller to lower the sales price, or to split the difference between the homeâ€™s appraised value and the price with you. This is when you can rely on your agent â€” and their negotiating skills â€” to go to bat for you.
You can also appeal the appraisal assessment. Youâ€™ll work with your agent to research comparable homes that support the sales price you agreed upon with the seller and present this information to your lender, who will forward it to the appraiser for a re-evaluation of the homeâ€™s value. Ultimately, though, itâ€™s up to the appraiser to decide whether to revise their valuation of the property.
Alternately, you can ask your lender for a second appraisal, though there are caveats:
Youâ€™ll have to pay for it out of pocket (or persuade the seller to foot the bill).
Youâ€™re more likely able to challenge an appraisal for a conventional loan than a government loan. And youâ€™d need solid facts to back it up in either case.
Thereâ€™s no guarantee that it will be higher and meet the sales price.
The last option: You can come up with the cash yourself to cover the difference between the homeâ€™s price and the appraised value.
If you donâ€™t want to take that route (and who could blame you?), a purchase agreementâ€™s home appraisal contingency gives you the ability to walk away from the deal scot-free, and with your earnest money deposit in hand.
But today, letâ€™s assume it all works out. With the appraisal behind you, youâ€™ll be one step closer to closing on that house.
Jon P. Wise believes customer service is a priority in building a successful business. He strives to ascertain the needs and wants of each client and then uses his knowledge and expertise to make th....
Latest Blog Posts
Follow These 4 Tips To Successfully Move During Winter (And Make It As Pain-Free As Possible) By Tara Mastroeni December 29, 2018 in Freshome's Very Best /
A step-by-step guide to get richer, healthier, and happier in 31 daysShana Lebowitz and Samantha Lee 19hAbove, a step-by-step guide to a better you. Samantha Lee/Business