Home Appraisal Facts

Imagine placing your home on the market, getting a great offer, working through the home inspection only to find out that the home appraisal came in under the price you agreed on. You might be asking yourself, what does that mean? Is a home appraisal really that important when both parties already agreed on a price?

That is a situation many Americans have experienced when selling their home. While a home appraisal might feel like one small check mark on a list of to dos, it can actually have a profound impact on the progress of the closing of a house.  A home appraisal can not only derail a contract, but it can cancel the agreement all together.  Here are five facts about home appraisals that you have to know.

  1. Appraisal = Fair Market Value

In almost all cases of a home sale and purchase transaction, a home appraisal will be required. According to Investopedia,An appraisal is an unbiased professional opinion of a home's value.” A home appraisal will also be used when a home owner wants to refinance their home.

  1. What Determines the Value

The value of a property is greatly influenced by the recent sales of similar homes in the area including the square footage, floor plan, condition, number of bedrooms, bathrooms, and home amenities. The home appraisal should be done by a third party that has no direct or indirect interest in the transaction. The appraiser will inspect the interior and the exterior conditions that might impact the value of the home.

Even when the seller and the buyer agree on a home price, the lender wants to protect itself from lending too much money in case the borrower is not able to pay the mortgage, and they have to take possession and resale the home. What that means for the seller is that if a home appraisal comes back under the agreed price, the sellers have two choices: they can lower the price of their home, or cancel the contract. The buyer also has the right to terminate the contact if the appraisal comes in under the list value.

  1. The Lender’s Role

The lender wants to make sure that the homeowner is not borrowing more money than the property is worth. In the case that the homeowners are not able to pay their mortgage and the house goes into foreclosure, it would be the lender who will recoup the money it lent by reselling the home. This key reason is why a home appraisal is done. It serves to protect the bank from lending more money than the home is worth in the case they have to resale the home.

  1. No Appraisal with a Cash Buyers

The only time a home appraisal won’t impact you selling your home is when you have an all-cash buyer.So, unless you want to wait for someone with who can buy your home straight out for cash, making sure you understand the appraisal process will help you manage your expectations and help the process continue to run smooth.

  1. Changing an Appraisal

It might be the case that as a seller, the homeowner feels that their home wasn’t appraised correctly. One key reason that can happen is due to distressed sales. The value of home could be dragged down by short sales or foreclosures that are nearby. A seller can share this information that their home is in considerable better condition than those homes with the appraiser. However, according to Investopedia, “Federal guidelines (intended to eliminate the inflated appraisal that contributed to the housing crisis) sometimes cause appraisals to come in below fair market value and can make low appraisals difficult to challenge.”

Wrapping Up

While a home appraisal might have been a formality in the past, currently, it can greatly impact the process of the selling of a home. When a home appraisal comes in at the agreed price or above, the closing of the home can proceed as normal. The problems arise when a home appraisal comes in below the agreed price. When this happens, it can slow the closing process down, derail, and even cancel the contract Knowing these five key aspects of an appraisal can help sellers and buyers come to the transaction informed and prepared.