By Kalista Mefford – Keller Williams Realty
One of the most confusing aspects of the buying or selling process for consumers is often the appraisal process. Often buyers and sellers do not know that their agreement to purchase a home at a specific price is not enough and can become frustrated when the appraisal comes in with a value too low and they must renegotiate or terminate the contract. Anyone can request that the purchase of a home be contingent on an appraisal, however lenders will require it. The appraisal is the lender’s way to ensure they are not loaning money over the actual market value of the property.
Appraisers are licensed professionals who look at the real estate market and determine the market value of a home. They are kept as a separate 3rd party to keep them outside of the influence of realtors, lenders and buyers. They make their determination by looking at the market the target property is in, then they look for recent sales of comparable properties. These properties must be located within a short distance, be of comparable size and often fall within the same subdivision or housing development.
Once these homes are identified, the appraiser will adjust for specific differences. For example, one home may have new flooring or a swimming pool, while another might need upgrades. They add or subtract value based on these differences. Other differences that are considered include but are not limited to location, view, lot size, upgrades, additions, and overall condition. Once the appraiser has completed his assessment and created an appraisal report, the lender will be notified of the determined value, a copy will also be given to the buyer.
The lender will then confirm or decline the loan amount. When appraisals come in below the contract price, the buyer and seller can negotiate next steps. Either the buyer can make up the difference in sales price by bringing more money to closing, the seller can lower the sales price, or they can mutually decide to cancel the transaction.
By learning about the recent sales in the areas you prefer to buy in ahead of time, you can make appropriate offers up front, then the appraisal should come back as expected. A licensed Realtor can help you learn about the sales and help with this process. You will find that appraisals are not as complicated as they may first appear.