Market Updates & All Things Real Estate!

Let's talk about....Appraisals!

August 9th, 2022 1:37 PM by Margaret Michelle Williamson

Let’s talk about appraisals…
First off, what is an appraisal? In short, an appraisal is an opinion of value. An appraisal is almost always needed when a buyer is obtaining financing for a piece of real estate (home, land, commercial investment).
How does an appraisal work? It’s important to note that no one can choose the appraiser when a bank/lender is involved. The bank/lender orders the appraisal through an appraisal management company (AMC) most of the time. The AMC assigns an appraiser to provide an appraisal report for the property. The appraiser then reaches out to the listing agent of the property to schedule a time when the appraiser can visit and walk through the property. 
The appraisal will inspect (different than a home inspection) the home’s interior and exterior, measure the home’s square footage and evaluate the home’s features and condition. Along with walking through the property, the appraiser will research properties with similar characteristics that have also sold in that same area. 
The appraiser then publishes and submits his report to the AMC which then is sent to the lender. 
WHAT IF MY HOUSE DOESN’T APPRAISE?
Let’s say the buyer is agreeing to buy your home for $200,000. The appraiser values the property at $190,000. What happens then? 
Well, there are a couple of different options. 
-The seller can agree to drop the price of the home to the appraised value of $190,000. 
-The buyer and seller can meet in the middle at a number between $190,000 and $200,000. However, it is important to note, that if a buyer agrees to pay $195,000, the buyer will most likely need to bring $5,000 extra to closing. Most banks/lenders will only lend money on the appraised value, nothing over. 
-The seller can put the property back on the market if the buyer doesn’t agree to pay the $200,000. In this scenario, the seller would re-list the property and hope to find another buyer that would be willing to take a chance on the property and order a new appraisal. The seller could also just look for a cash buyer that wouldn’t require an appraisal. 
WHAT HAPPENS IF MY PROPERTY APPRAISES FOR MORE THAN THE PURCHASE PRICE?
Following our example above, let’s say the appraisal comes in at $210,000. This will not change the purchase price. It won’t change anything. The price had already been agreed upon and cannot be changed unless the buyer and seller both approve the change. The buyer would know that they will instantly have $10,000 in equity (according to that appraiser).
WHO GETS TO SEE A COPY OF THE APPRAISAL?
The buyer pays for the appraisal so the lender and the buyer are the only parties who get a copy of the appraisal. However, if the appraisal value comes in below the purchase price, a copy can be requested by the seller to verify the appraised value. 
In conclusion, an appraisal is an opinion. Two appraisers can value a property at two different amounts. There are several options if your house doesn’t appraise out and you are never forced to sell your property for appraised value unless that has been formally agreed upon before hand. 
This is just the start of appraisals. There are many more factors involved and it is your real estate agent’s and lender’s job to help guide you through every step of a real estate transaction. 
If you are ready to get started on searching for a new home or if you are thinking about selling your current home, contact us today! We are always here to help and pride ourselves in being educated in all facets of a real estate transaction!
Posted by Margaret Michelle Williamson on August 9th, 2022 1:37 PM

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