Whether you are buying or selling a home, understanding the appraisal process is crucial. An appraisal is an essential step in the real estate transaction that can significantly influence both buyers and sellers. In this blog, we’ll break down the appraisal process, its importance, and what you can expect as a buyer or seller.
What is a Home Appraisal?
A home appraisal is a professional assessment of a property’s market value conducted by a licensed appraiser. The purpose of an appraisal is to determine the fair market value of the home, ensuring that buyers don’t pay more than its value and that lenders do not lend more than the property is worth.
Why is an Appraisal Important?
For Buyers:
- Loan Approval: Lenders typically require an appraisal before approving a mortgage. If the home appraises for less than the agreed purchase price, it can complicate financing.
- Investment Assurance: Knowing the appraised value helps buyers ensure they are making a sound investment.
For Sellers:
- Pricing Strategic Decisions: Understanding your home's appraised value can help you set a realistic asking price. It allows you to attract serious buyers and avoid pricing too high or too low.
- Negotiation Tool: If the appraisal comes back lower than the listing price, sellers can use this information in negotiations with potential buyers.
The Appraisal Process Explained
Order the Appraisal: For buyers, the lender typically orders the appraisal once the purchase agreement is signed. Sellers may also choose an appraisal before listing their home to set a competitive price.
Choosing an Appraiser: Licensed appraisers are selected, either through the lender or by the seller in the case of a pre-listing appraisal. They should have experience with your property type and be familiar with the local market.
The Appraisal Inspection: The appraiser will visit the property and conduct a thorough inspection. This includes assessing the home’s condition, size, layout, and any upgrades. The appraiser also looks at comparable properties (comps) that have sold recently in the area.
Report Preparation: After the inspection, the appraiser compiles a report that includes:
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- The property’s current condition
- The appraised value based on comparable sales
- Exit observations (like necessary repairs)
Receiving the Appraisal Report: The lender receives the appraisal report and will share it with the buyer and seller. The report will indicate whether the
home’s appraised value meets, exceeds, or falls short of the purchase price.
What Happens If the Appraisal Is Low?
For Buyers:
Renegotiate the Offer: If the appraisal is lower than the agreed-upon price, buyers may negotiate with the seller to reduce the price to the appraised value.
Increase Down Payment: Alternatively, buyers can make up the difference with a larger down payment to satisfy lender requirements.
Walk Away: Depending on contract terms, buyers may have the option to walk away without penalties if the appraisal is significantly lower than the offer.
For Sellers:
Consider the Appraised Value: If the appraisal comes in low, sellers can consider adjusting the price to match the appraised value to facilitate a sale. Provide Evidence: Sellers may present evidence such as recent renovations or high-priced comparable properties to justify their higher asking price, though this does not guarantee success.
Conclusion
Understanding the appraisal process can empower buyers and sellers alike in their home transactions. For buyers, it ensures you’re making a wise investment, while for sellers, it helps set appropriate expectations regarding market value.
Whether you’re looking to buy or sell, having the right guidance throughout this process is essential. If you have any questions about home appraisals or need assistance with your real estate journey, feel free to reach out. I’m here to help!
Brought to you by:
Dr. Zakk Varughese, REALTOR®
HomesRX (601) 667-8414