In a hot market, banks and buyers don’t always see eye to eye – appraisal woes
So you found the home of your dreams, won the bidding war, finished the home inspection, and now it’s appraisal time. What does this mean? Your lender is asking you for money and you aren’t event sure what it’s for. Didn’t your agent already check the value? Well wonder no more.
Let’s start with the definition:
An appraisal in a real estate transaction is the bank’s way of confirming the worth of the property that they are going to loan money for – a third party, independent assessment of value. They order through a service so that they cannot influence the results and an appraiser will contact the seller or their agent to gain access to the home. They spend some time gathering information about the house, the neighborhood, and recent sales of similar properties. An appraiser will take pictures and measurements of your home before they return to their office to prepare the paperwork and crunch the numbers.
Your appraisal will contain everything from tax value, cost per sq foot, market fluctuations, and upgrades. In the end, they will come up with a number that they feel is a fair representation of the property’s current value. As with anything, this number is somewhat subjective and can vary. Generally, this number comes in very close to the price you have agreed upon with the seller for the home. However, we have had the same home appraised by two different professionals with a difference in value of 11% – so anything is possible.
When a property doesn’t “come in at value” most buyers and sellers get a little anxious. There are several things you can do in this situation, so all is not lost.
Assuming you have an appraisal contingency written in to your sales contract (which is the norm for any financed property), here’s what you do:
In all things real estate related, the most important thing is that you understand all of your options and are able to make an educated decision comfortably. It is imperative that you have a team of professionals behind you with the knowledge and experience to help you navigate the waters of one of the biggest financial transactions of your life. If, at any time, you have questions please make certain to consult with your team (lender, real estate agent, settlement company) for a successful outcome.