If you take a ring or a piece of jewelry into the jewelers to have it appraised an expert I will take a look at the quality, craftsmanship, and design of a piece and determine its value. Of course, the value of something is only as high as someone is willing to pay for it, but the same is true for real estate. An appraiser technically just gives their opinion on what the home is worth based on comparable sales and current values. So how important is the appraisal process when buying a home?
Whether you are buying a home with all cash or you are financing it, having an appraisal on the property will help determine its value so that you don’t overpay with cash and so that lenders will allow you to borrow money to purchase the property. If the appraisal comes in lower than the amount you want to borrow, lenders are not likely to give you more money than the home is worth. Similarly, if you’re paying all cash, you don’t want to overpay on a home unless you’re trying to compete against other buyers, cash offers, or in an auction. Nevertheless, knowing that you’ve overpaid for home doesn’t feel good to anyone except for the seller.
So how do appraisals work?
Sellers can get an appraisal ahead of time to determine a price on the property but this is unusual. Most often buyers and sellers will agree to a price and then the lender will issue the appraisal. Lenders will want to verify not only that the buyer can afford the property in monthly payments, but that the lender is not paying out more than the property is worth.
Once the purchase and sale contract is underway, lenders will send an appraiser out to the property. Appraisals typically take between 45 minutes and two hours depending on the extensiveness of the home and property. After that, there can be a couple of weeks to determine the value based on comparable sales and the current housing market. If the home doesn’t have many comparables it can be difficult to narrow down a price and it may take longer. Similar homes are easier to appraise, especially if multiple homes have sold in an area within a short amount of time.
The goal of the appraiser is to look at the property and ascertain its condition. Appraisals will typically inspect the exterior, landscaping, and maybe even the interior to compare the information of recent sales to similar properties. Condition, size, and location of the property all factor into the appraisal process. When completed, the appraiser will present the appraisal to the lender and/or the buyer.
How to get the best possible appraisal.
For sellers, it’s important to showcase the home to the best of its ability. If there are certain upgrades are renovations that an appraiser may not realize, sellers can inform the appraiser of any upgrades and additions increasing the home’s value. Sometimes, simple things like cleaning up and presenting a well-maintained home can work wonders for the appraisal process and provide enough information to allow the appraisal to come in within value.
What happens if the appraisal comes in too low?
It’s rare, but sometimes the appraisal will come in lower than what the buyer is offering the seller. If this is the case there are several directions one can go. You can have another appraisal completed at additional cost and hope for the best, the buyer can put in the additional money to make up the difference, or the seller could lower the price to meet the appraisal. All three are reasonable but need to be negotiated and agreed upon by both buyer and seller before continuing.
The appraisal process is one of the most critical steps to the home buying process for both buyers and sellers. You want to know that what you’re buying is worth its value and even though it’s just an opinion, expert and experienced appraisers understand what sells, the current values, and how to properly evaluate a property.
Have more questions about the appraisal process? Feel free to contact our office at any time. Start your online search here for all Gulf Coast properties and don’t hesitate to contact one of our agents that specializes in homebuyers in the appraisal process.
