The appraisal process plays a critical role whether you are buying or selling a home. For buyers, it can determine whether their dream home is within reach. For sellers, it can confirm or challenge their asking price. What exactly is an appraisal and why does it matter?
What is a home appraisal? An appraisal is an unbiased determination of a property's value conducted by a licensed appraiser. In most cases, lenders require an appraisal to ensure the home's value aligns with the amount of money being borrowed. In other words, a lender does not want to loan a borrower $100,000 for a home if the home is only worth $70,000. The appraiser evaluates the home's size, location, condition, and features and compares it to similar homes in the area that have sold recently.
Why are appraisals important? For buyers, an appraisal ensures you're not overpaying for a property. If the appraised value is lower than the agreed-upon price, negotiations will take place and it could impact your ability to secure financing. On the other hand, if the appraised value comes back higher than the contract price, congratulations! You have automatic equity in the home. For sellers, the appraisal validates your asking price. If the appraised value is significantly lower, you may need to negotiate with the buyer or reconsider your pricing strategy. For lenders, the appraisal is used to mitigate risk. They won't lend more money than what the home is worth, ensuring their investment is protected.
The appraisal process and what to expect. Once the buyer's offer is officially accepted, the lender will order the appraisal as part of the mortgage process. The appraiser will visit the property to assess its condition, size, and features. Depending on the type of loan you are getting (conventional, FHA, VA, Rural Development, etc), the appraisal may take note of things that need to be repaired before they can give final approval (chipping paint, missing railing on a stairwell, etc). Upgrades and unique characteristics of a home may also be taken into consideration when assigning a value. After the inspection, the appraiser reviews comparable sales in the area and considers market trends to determine the home's value. Once the appraiser has generated a report, it will be sent to the lender. The report outlines their findings and, ultimately, the home's value.
What happens if the appraisal is lower than expected? A low appraisal sounds scary, but it's not the end of the road! Buyers and sellers need to keep an open mind. Negotiating the price is most often the solution to this. If the seller isn't willing to budge on the price and the buyer is able, they can pay the difference between the purchase price and the appraisal price. If the appraisal comes in lower than expected and the agent's don't agree with that assessment, they may be able to get a second opinion or send in their own comps to support the asking price.
Why working with professionals matters. A real estate agent can be an invaluable resource during the appraisal process. It is important for buyers and sellers to remain patient, and real estate agents can help provide peace of mind and assurance during the waiting period. A professional agent will ensure the property is priced correctly to begin with, provide data on comparable sales, and assist in navigating any challenges that arise from the appraisal.
While the appraisal process may seem daunting, understanding its purpose and steps can make it easier to navigate. Whether you're buying or selling, being informed and prepared ensures you'll handle this critical stage of the transaction with confidence.
Have questions about appraisals or need guidance? Contact us today - our team is here to help you every step of the way!