What is an appraisal?
Simply put, a real estate appraisal is the expert opinion of a certified, state-licensed professional appraiser who determines the value of a piece of property, or what is also called “market value.”
Appraisers confirm and evaluate the existence and condition of the property; square footage; number of bedrooms; reported upgrades (you or your agent need to provide this information to the appraiser, if possible); all interior permanent features that could affect value; any other permanent structures on the property; the exterior of a house; and all land area within the property lines.
Appraisers also take into consideration the neighborhood quality and proximity to schools. A strong and active real estate market can further influence their assessment. Another element of their job is to compare the asking price of the subject property to prices of similar homes that have recently sold in the area. Such similar sales comparisons are called comparables.
So how does the appraisal fit into your home buying process?
Let’s say you found you dream home. It’s THE ONE. It’s perfect, and you have already planned where to place all the furniture in your head. Your expert real estate agent has negotiated an incredibly awesome, final sales price of $350,000.00. Your bank has already pre-approved you for that amount. But is this home, your dream home, really worth $350,000.00?
That’s where this thing called the appraisal sneaks in…. The value of the home will determine the amount the lender is willing to lend you to purchase the subject property. When you apply for a mortgage, lenders require a home appraisal, typically by one of their approved appraisers. It is a buyer’s cost, though, and you usually pay for it as part of your closing costs. Appraisals cost around $200.00 – $400.00, depending on the price, size, and type of property involved.
An appraisal can protect you, the homebuyer, from paying more for a home than what it’s worth. But lenders require home appraisals for mortgages because appraisals protect the banks from getting burdened with properties worth much less than their investments.
So again, back to your dream house, what happens when the appraiser comes back with a value of $300,000.00? This scenario is not uncommon in a hot market, like we’re experiencing today. What a home sold for 3 – 6 months ago, may be considerably lower than what it would sell for today. So, the lesser value now means that the amount a buyer can finance to purchase the property is lower than expected.
But do not fret! There are a few options. Review the appraisal and subject property to see what caused the low appraisal first. It could be something easily remedied. There may just be repairs or maintenance the homeowner needs to complete, and then the appraisal can be adjusted upon review. If that is not the case, there are a few other options:
- You may have the option to order a second appraisal, however this could necessitate changing lenders
- Work with the seller to lower the price, which can be more difficult in hot markets like we’re experiencing now
- You, the buyer and borrower, can increase your cash down payment.
If all of these options fail and the appraisal is still too far below what amount the bank if willing to finance, then you may have to cancel the transaction. But that is why it is imperative to work with an experienced agent to help navigate you through this process.
Want to talk Mueller or Real Estate in Central Austin? Feel free to be in touch 512.913.8642, Hilary@muellersilentmarket.com