Appraisals

Appraisals

Home Appraisal

A home appraisal is an unbiased estimate of the fair market value of a home. The bank or lender will order an appraisal to be completed by a licensed appraiser and this will determine the value of a property. More importantly, it will determine whether the home’s contract price is appropriate, given the home’s condition, location and features.  Lenders want to ensure that homeowners are not over-borrowing for a property, since the home serves as collateral for the loan.

The result of the appraisal will determine how much a lender is willing to give a buyer to purchase a property. The cost for the appraisal is typically around $550 and is paid for by the buyer.  Ordering an appraisal can take several weeks and it is often advised to order an appraisal as soon as the inspection contingency has passed. If the buyer waits too long to order an inspection, the date of closing can be delayed. Your broker will work closely with your lender to ensure proper timing for the appraisal.

If the appraisal comes back at or above contract price, the transaction proceeds according to schedule. If the appraisal comes back below contract price, closing could be delayed or worse, the entire transaction could be in jeopardy. 

Typically, both buyer and seller are motivated to save the transaction. If the appraisal is low, the buyer can use this information as a negotiating tool, advocating for a lower purchase price. If the seller refuses to lower their price and the deal is terminated, they are likely to encounter a similar issue in the future, since no buyer will qualify to borrow more than the appraised value of the home they are purchasing. 

A seller may refuse to drop the price by claiming that the low appraisal was inaccurate or flawed.  In this situation, it can be worth ordering another appraisal by a different professional.  Appraisers do make mistakes or use imperfect data in their analysis. If the case for a higher value can be shown in the second appraisal, the original appraiser may be willing to re-evaluate and revise their report.

Determining the market value of a home is an important part of every real estate transaction.  Arriving at an accurate market value is vital for buyers, sellers, lenders and agents alike. It prevents buyers from paying too high a price and guarantees that a seller’s listing doesn’t sit stagnant on the market. The correct market value enables transactions to proceed with speed and efficiency. 

Real Estate brokers use what is commonly called a Comparative Market Analysis (CMA) to help sellers establish a listing price.  A CMA is a list of nearby homes that are currently for sale or have recently sold. These homes are comparable to the new listing in square footage, amenities, age and bedroom/bathroom layout. 

When a buyer is borrowing money to purchase a property, their financial institution will require an appraisal.  Unlike a CMA, an appraisal is a professional determination of a home’s value, completed by licensed appraisers, using guidelines established by the Federal Housing Finance Agency. 

While appraisers rely on data similar to that used in a CMA, the bank requires additional guidelines designed to minimize risk to the lender.  Appraisers take a comprehensive look at a home’s condition, location, and eligibility for federal guarantees, and can adjust values to reflect market fluctuations.

The Value of Your Home

In a neighborhood of similar homes, why is one worth more than the other?