Most people have deeply personal reasons for wanting to buy a home. Maybe it’s the bathroom that feels like a dreamy, modern spa or that two-tiered deck made just for parties. Your lender doesn’t care about the freestanding tub or the outdoor fire pit. Their only conceren is that the house you buy is worth as much as the value of your mortgage. To them, a house isn’t a home. It’s collateral. (Harsh, but true!) If someday, for some reason, you can’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. That’s where a home appraiser comes in.
A Home Appraiser is Neutral. After you sign a purchase agreement and before your lender approves your loan, the home you’re buying must pass an appraisal. That’s an assessment of the property’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 – how much a house is worth. The appraiser is not on anyone’s side. They don’t represent you or the seller; instead, this person is a contractor chosen by your lender through an appraisal management company – 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: 1) Location; 2) Age; 3) Condition; 4) Additions or renovations; 5) Recent sales of comparable homes.
Prepare to Pay for the Appraisal – or to Negotiate. Generally speaking, the home buyer is responsible for paying for the appraisal, and the fee typically is wrapped into your closing costs. However, the party who pays for the appraisal is negotiable. It never hurts to see if the seller is willing to cover it. The average professional home appraisal will run between $330 and $440. Costs can vary depending on the square footage and quirks of the house, with higher appraisal prices for larger or more unusual homes.
Appraisals Take a While, So Be Patient. Typically, a purchase agreement has a “home appraisal contingency” requiring the appraisal to be completed within 14 days of the sales contract being signed. Because it takes some time to visit your house and write a report, your lender will typically order the appraisal immediately after you sign the purchase agreement.
Here’s What Valuation Mean – and What to Do Next. When the appraisal is finished, the appraiser issues a written report with their 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 methology and also include photographs they’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: 1) if the appraiser’s valuation matches the price you and the seller agreed to for the home: your lender will proceed to underwrite your loan. This is the final step in your loan-getting process. 2) If the appraiser’s valuation is higher that what your paying for the home: Congratualations! You’ve gained immediate equity. How? Let’s say you’re paying $200,000 for the house. If the appraiser say it’s worth $250,000 – jackpot! That’s an instant $50,000 in equity. 3) If the appraisals lower than what you agreed to pay for the home: Your lender won’t give you a loan for more than the appraised value. If that happens, what next? There are several ways the deal can still go through.
Why an Appraisal Was Low. Here are some reasons why appraisals come in lower than expected. The seller overvalued the price of the home; the appraiser isn’t familiar with the neighborhood; the appraiser overlooked pending sales data; the appraiseer had trouble finding comparable homes; home prices in the area are changing so fast that the listing agent’s price no longer reflects the market or the appraiser simply rushed the job.
What You Can Do About a Low Appraisal. If the appraisal comes in low, your agent will offer recommendations about how to proceed. Your best strategy is to persuade the seller to lower the sales price or to split the difference between the home’s appraised value and the price with you. You can also appeal the appraisal assesment. Ultimately, it’s up to the appraiser to decide whether to revise their valuation of the property. The last option: you can come up with the cash to cover the difference between the home’s price and the appraised value. If you don’t want to take that route, a purchase agreements home appraisal contingency allows you to walk away from the deal scot-free, and with your earnest money in hand.
For additional information about the appraisal process, contact Falvey Real Estate Group at 518 452-3912.