Home buyers, are you wondering what to expect during a home appraisal? When should you negotiate and how should you deal when things do not go your way? Michele Harmon Team has five things every buyer should know about home appraisals.
Why Do I Need an Appraisal?
If you are financing your purchase, your lender will require an appraisal. After you sign a home purchase agreement (the contract between you and the seller about the terms of the pending sale), and before your lender approves your loan, the home you are buying must receive an appraisal- an assessment of the property’s value by an unbiased third party: the appraiser.
In most cases, home buyers have deep personal reasons for choosing to buy a particular home. Maybe it’s the bathroom that feels like a tranquil spa or the two-tiered deck perfect for entertaining. However, your lender does not have any emotional attachments to the home. Their primary concern is that the house they are helping you purchase is worth as much as the value of your mortgage.
The Home Appraiser is Unbiased
According to the Texas Appraiser Licensing and Certification Board (TALBC), “a professional appraiser provides an impartial and objective valuation of a property.” TALCB exists to protect consumers’ interests as well as to ensure appraisers comply with the Uniform Standards Professional Appraiser Practice (USPAP) in their appraisal assignments. In other words, the home appraiser’s job is to assess an opinion of value – how much a house is worth. The appraiser is not representing you or the seller. The appraiser is a contractor chosen by your lender through an appraisal management company – a separate, neutral entity that maintains a roster of appraisers.
If you would like to learn more about a particular appraiser, the TALCB has a National Registry of Appraiser database that will allow you to:
- Investigate an individual’s experience and credentials
- Determine if there are any problems or pending investigations with an individual’s work
- Search for appraisers by state, city, county, by name., or by license number
The home appraiser will survey a house in person, using five main criteria to determine the value of a home:
- Location
- Age
- Condition
- Additions or renovations
- Recent sales of comparable homes
Be Prepared to Pay for the Appraisal
The home buyer is typically responsible for paying for the appraisal, and it will be included in your closing costs. According to HomeAdvisor.com, the average professional home appraisal in Texas will run between $320 and $425. Costs vary depending on the square footage and quirks of the house, with higher appraisal prices for larger or unusual homes.
So, You Received Your Valuation. Here’s What it Means – and What to Do Next
When the appraisal is finished, the appraiser will issue a written report with his or her opinion of the value of the home. They will use their analysis of the property, data from comparable homes, and the purchase offer to complete the report. The report will outline their methodology, and it will also include exterior and interior photographs they took of the property. You and your lender should receive a copy of the report. Three things could happen next:
- If the appraiser’s valuation matches the price you and the seller agreed to for the home: Your lender will proceed to underwrite your loan. Great news! This is the final step in the loan process!
- If the appraiser’s valuation is higher than what you are paying for the home: Congratulations! You have gained immediate equity! How? Let’s say, for example, you are paying $300,000 for the house. If the appraiser says it is worth $350,000- JACKPOT! That is an instant $50,000 in equity.
- If the appraisal is lower than what you have agreed to pay for the home: Your lender will not give you a loan for more than the appraised value. If you and the seller agreed on $300,000, for example, but the appraisal is $290,000, that creates a $10,000 shortfall. So, what happens next?
Do not panic! If you are faced with a low appraisal, it is still possible for the deal to go through.
If an Appraisal is Low, You Can Still Make it Work
Before we discuss strategy, here are some reasons why appraisals come in lower than expected:
- The seller overvalued the price of the home
- The appraiser is unfamiliar with the neighborhood
- The appraiser overlooked pending sales data
- The appraiser had trouble finding comparable homes, so they had to compare the home with properties outside of the neighborhood
- Home prices in that particular area are changing so rapidly that the listing agent’s price no longer reflects the current market
If the appraisal comes in low, Michele Harmon Team will offer advice on how to proceed. In general, your best strategy is to persuade the seller to lower the sales price, or to split the difference between the home’s appraised value and the price with you. This is when you can rely on Michele Harmon Team – and our excellent negotiating skills – to go to bat for you.
You can also choose to appeal the appraisal assessment. Michele Harmon Team will help you research comparable homes that support the sales price you agreed upon with the seller and present this information to you lender, who will forward it to the appraiser to decide whether to revise their valuation of the property.
Alternatively, you can ask your lender for a second appraisal. However, there are some downfalls to this route:
- You will likely have to pay for it out of pocket
- It is more difficult to challenge an appraisal with a government loan than a conventional loan. Regardless of the loan type, you will need solid facts to back your case
- There is no guarantee that a new appraisal will meet the sales price
The last option: If you have the cash available, you can choose to cover the difference between the home’s price and the appraised value. If you do not want to take any of these routes, a purchase agreement’s home appraisal contingency gives you the ability to walk away from the deal with your earnest money deposit in hand.
But for now, let’s assume it all works out. With the appraisal behind you, you will be one step closer to closing on your dream home.
