Hey, Buyers: These Home Appraisal Tips Are for You
What to expect, when to negotiate, and how to deal when things donât go your way.
Most people have deeply personal reasons for wanting to buy a home. Maybe itâs the bathroom that feels like a dreamy, modern spa. Or that two-tiered deck just made for parties.
Your lender doesnât 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 isnât a home. Itâs collateral. (Harsh, but true.) If someday, for some reason, you canât 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. Thatâs 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 youâre buying must pass an appraisal â an assessment of the propertyâs 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 âAgents should make sure the appraiser has details on everything from the homeâs 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 oneâs side. They donât 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 theIf the home you want has a finished basement, donât assume itâll appraise for more because of it. Below-ground space is valued at less per square foot than space above.square footageand quirks of the house, with higher appraisal prices for larger or more unique homes.
Typically, a purchase agreement has a âhome appraisal contingencyâ 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. Hereâs 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 theyâve 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 appraiserâs 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 appraiserâs valuation is higher than what youâre paying for the home:Congratulations! Youâve gained immediate equity. How, you ask? Letâs say, for example, youâre paying $200,000 for the house. If the appraiser says itâs worth $250,000 â jackpot. Thatâs an instant $50,000 in equity. (Keep in mind, this is very rare.)
If the appraisal is lower than what youâve agreed to pay for the home:Your lender wonât 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?
Donât despair â not yet. If youâre 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 isnât familiar with the neighborhood.
The appraiser overlooked pending sales data.
The appraiser had troubleAn 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 wasnât 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 agentâs 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 homeâs 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.Youâll 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 homeâs value. Ultimately, though, itâs 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:
Youâll have to pay for it out of pocket (or persuade the seller to foot the bill).
Youâre more likely able to challenge an appraisal for a conventional loan than a government loan. And youâd need solid facts to back it up in either case.
Thereâs 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 homeâs price and the appraised value.
If you donât want to take that route (and who could blame you?), a purchase agreementâs 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, letâs assume it all works out. With the appraisal behind you, youâll be one step closer to closing on that house.
Author:Jon Wise Phone: 312-287-8362 Dated: November 8th 2018 Views: 232 About Jon: Jon P. Wise believes customer service is a priority in building a successful business. He strives to...
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