The Basics of Home Appraisals
Posted by Eric Skates on
The home buying process can be very intimidating. After taking your time to look at a lot of houses and pick one you really love that also fits within your budget, you are ready to be done. You are not quite out of the woods yet, but it does not have to be painful. Understanding what is happening each step of the way will help you be more patient and less confused.
One of the critical processes that must happen between the time you apply for your loan and the closing is the appraisal. You may have heard this is a requirement of your lender and be tempted to think this is some kind of bureaucratic time and money waster. It actually is not, so let us explain to you why an appraisal benefits you as well.
What is an appraisal, anyway?
An appraisal is an independent assessment of the value of the home you are trying to purchase or refinance. It is completed by an appraiser, who is a professional trained to determine a home's value for a specific geographical area. They are not looking at decor or aesthetics as much as they are looking at the actual physical structure. Cracks or water damage to the ceiling, fixtures in need of repair, a roof that is old, a rough neighborhood, and recent home sale prices in your area are the kinds of things appraisers look at. They are usually hired by the lender but are independent and can face severe fines and penalties for not being so.
Why does the lender require an appraisal?
Because a lender is putting forth a substantial amount of money, they need to consider all possible outcomes. Should you end up in foreclosure, the lender takes possession of the house and will need to be able to sell it quickly, as they do not care to be in the business of property management or deal with maintenance issues. So it is perfectly reasonable they want to ensure the house is actually worth the contract price. If they do have to sell, they of course want to be able to recoup their money.
How does this help you?
It may help you to be patient if you can see how this benefits you. In the end you will likely be paying for this process in closing costs, and it does cost several hundred dollars. That is another really good reason to know how it helps you. For starters, you certainly do not want to pay more for anything than it is worth. It can be tempting to feel anxious about this process because it can potentially delay or derail a deal. However, it is always possible some unforeseen circumstance could force you to sell in the near future. If you pay more than it is worth, you could end up losing money. Sometimes it is hard for a seller to accurately assess the value of a home. They may have emotional attachments or a lot of money or time invested in the house. If they have overestimated the worth of the house, an accurate appraisal will give you a negotiating tool to lower the price.
What to do if the process is in danger of falling through
If you have gotten an appraisal below the contract price, and the seller refuses to budge, you do still have options. If your heart is set on this particular house, either you or the seller can hire another appraiser for a second opinion. Even though they are trained to be impartial, there are always differences of opinion. It can be helpful to share information with them. For example if several homes in the area have recently sold as short sales or foreclosures, letting the appraiser know can help. It can also help if the seller completes one or more small repairs to increase the value.
The home buying process can seem to drag on forever, but be heartened, many of the processes are designed to protect you, and soon you will be moving into your new home! Please contact us for more information about the home buying or refinancing processes. We look forward to helping you get approved for your new home.