By: REBAC Staff
1. Why is an appraisal required?
Lenders need to avoid risky mortgage investments. In addition to evaluating your finances, your lender will also want to ensure your home has a market value that matches or exceeds your purchase price.
Since your home serves as collateral for your loan, lenders want to minimize the risk of needing to sell your property, potentially at a loss, if you stop making your mortgage payments. Appraisals help banks protect themselves against worst-case scenarios.
2. Do I need to hire an appraiser?
No, your lender will take care of hiring a qualified, professional appraiser. Even though buyers usually pay the appraisal fee, appraisers are retained by and effectively work for lenders.
3. How do appraisers determine a home’s value?
Appraisers are obligated to be impartial and follow guidelines detailed in the Uniform Standards of Professional Appraisal Practice.
An appraiser evaluates a home on multiple dimensions, including the size, age, and condition of the property compared to other similar properties that sold recently.
Suppose a property is unique or in an area where comparable sales happen infrequently. In that case, an appraiser may need to modify their approach, expanding the search area, the time parameters, or relying on other criteria to establish a value.
4. How could the results of the appraisal affect my purchase?
If the appraised value is similar to the contract price, the lender will likely move forward on finalizing your mortgage. On the other hand, an appraisal below the contract price can create a new set of complications.
Your lender may ask you to increase your down payment to make up the difference and improve your loan-to-value ratio. Alternately, you might convince the seller that the appraised value is fair and see if they are willing to renegotiate the contract price.
Since a low appraisal creates an opening for buyers to reduce the price or void the contract, sellers tend to be nervous about appraisal results. However, in highly competitive markets, a seller may assume that plenty of other buyers are interested in their home, potentially including a cash buyer, and pass on any attempts to negotiate the price.
As a buyer in a highly competitive market, it might be beneficial for the appraised value to come in higher since that lets you finance more of your purchase instead of finding extra cash before closing.
5. Can I challenge the appraisal results?
If your appraisal results come in substantially below your contract price and you think the appraiser made a mistake, request a copy of the complete report and look through the data. If you find an error, you can challenge the results.
Sometimes, appraisers don’t have as much detailed knowledge about an area as real estate professionals who are actively involved with recent sales and listings. Therefore, it may be beneficial for your agent to share their Comparative Market Analysis (CMA) with the appraiser along with any other helpful information about specific properties or the dynamics that are currently driving supply and demand in the area.
Typically, appraisers are receptive to this information if they haven’t completed their analysis or submitted their report to the lender. However, once the report has been filed, reevaluating an appraisal is considerably more difficult.
Your Accredited Buyer’s Representative (Meghan Carroll, ABR) can guide you on every step in the purchase process, including the appraisal. Discuss any additional questions or concerns you may have with them.