A home appraisal is a crucial step in the closing process. But depending on how the appraisal comes out, it can make or break a sale.
Let’s talk about everything you need to know about home appraisals.
What is a home appraisal?
An appraisal is an assessment of the property’s worth based on an appraiser’s professional opinion.
Are home appraisals and home inspections the same thing?
No. Though both occur before the sale goes through, these 2 items are different examinations of the home.
- An appraisal looks at the property’s value.
- A home inspection looks at the integrity of the home’s systems, like HVAC, plumbing, and electrical.
But both are important elements when making an educated decision about your purchase.
Why does a home appraisal matter?
The appraisal provides your lender and you with protection by making sure you don’t pay too much for the property.
If the appraisal comes in lower than the sale price, you may be able to negotiate a better deal.
Why is a home appraisal required?
If you’re a cash buyer, an appraisal is not required.
If you’re using financing, your lender will require an appraisal to protect their investment and confirm you’re getting a fair price. The home appraisal has to come in at the sales price before your financing will be approved.
When does the home appraisal happen during a sale?
The home appraisal is one of the first steps in the closing process.
Who pays for the home appraisal?
Most of the time an appraisal is paid for by the buyer (even though the lender will order the appraisal).
What does an appraiser look for?
The appraiser will look at several elements:
- Property condition
- Property attributes
- Neighborhood attributes
- Comparable properties
Each element affects the overall property value and can raise or lower the price by thousands of dollars.
What is included in the home appraisal report?
An appraisal is a complex process with lots of data and analytics of the property and current market conditions.
The appraiser will take all that information and create a report that includes:
- An explanation of the valuation
- An overview of the local housing market trends
- A summary of the property’s characteristics
- Any structural problems or defects
What happens when an appraisal comes in lower than the sale price?
If an appraisal comes in lower than the sale price, the lender will not lend you more than the appraised value.
If this happens, typically, the buyer and seller will renegotiate the price and meet somewhere in the middle between the sales price and appraised value.
For example, the original sales price is $300,000, but the appraised value comes back at $290,000. The buyer and seller could then agree to renegotiate the price down to the middle, like at $295,000.
Bottom line, you’ll have to either pay more out of pocket and increase your down payment or get the seller to lower their asking price.
What causes a low appraisal?
A low appraisal can occur in a strong seller’s market when prices are rising fast.
Appraisers use comparables dating back 5 months and these may not match the current appraisal values in a hot market.
A home appraisal doesn’t have to be a roadblock to buying a home.
Most appraisals are in line with the selling price. But in rare cases where problems do occur, your real estate agent and lender are there to help you resolve the issue and move on to a smooth closing.
Have more questions about home appraisals or need other resources? Call at (772) 335-7474 or send us an email. We’re happy to help!
Your Team at Liberty Title Company of America
