How a Home Appraisal Can Affect Your Real Estate Transaction
If a home buyer and seller agree on the price for a home, why is a home appraisal still necessary? There is much more to the transaction than just a mutual agreement, especially when financing is involved. The appraised value of a home may not always match the agreed-upon purchase price. This leads the buyer and seller to have to make additional decisions.
How exactly can a home appraisal affect a real estate transaction? What happens if the appraisal comes in lower, or higher, than originally expected? Understanding where the appraisal fits into the process, and what it actually means, can help buyers and sellers know what to expect before closing.
What Is a Home Appraisal?
A home appraisal is when a licensed appraiser performs an independent and neutral assessment of a property to determine their opinion of its market value. Appraisals are typically required by lenders when you are attempting to get a loan for a mortgage payment. This is only to ensure that you are not attempting to borrow more money than you actually need.
When Does the Home Appraisal Happen?
Home appraisals typically happen right after the seller accepts the buyer’s offer and after the property goes under contract. Some appraisals can be quick depending on the property and the appraiser. Usually, buyers can expect to have the full appraisal report back for review within 1-3 weeks.
What Does a Home Appraiser Look At?
During this process, the appraiser will look at a few different things. First, they look at your home’s interior, considering its overall condition along with square footage, number of rooms, and they floorplan. Similarly, they will also examine the home’s exterior features such as the roof and foundation. The appraiser will also drive around the neighborhood and compare what they have found with similar homes nearby that also recently sold.
What Is the Difference Between a Home Appraisal and a Home Inspection?
Knowing that both an appraiser and a home inspector evaluate aspects of a property, can these reports be used interchangeably?
No. A home appraisal and a home inspection are both very important in the buying and selling process, but they have two different purposes. An appraisal helps determine the home’s fair market value. A home inspection helps ensure the home’s major systems and overall structures function properly before the buyer completes the sale and moves in.
What Happens If the Home Appraisal Comes In Low?
So what happens if you get your appraisal report back and the estimated market value is less than you anticipated? For example, your contract says $350,000 but your appraised value states $335,000, leaving a $15,000 difference.
Your sale could hit some roadblocks, but it does not mean that the transaction is over. This is where, as the buyer, you would have the choice to negotiate with the seller for a lower sale price. If the negotiations fall through, you are left with a few other options. Either 1) bringing more money to closing to make up for the difference that the loan will not cover, 2) requesting a reconsideration of value through the lender, or, in some situations, 3) backing out of the offer completely.
What If the Home Appraises at or Above the Purchase Price?
If the home appraises at or above purchase price, this is generally good news! When the appraisal matches the offer, the loan will move towards the next steps of being finalized. From there, the transaction continues through the remaining financing and closing processes.
If the appraised value is greater than the original offer, this puts the buyer in a better position. For them, this means that they will have some instant equity after the sale is complete
Can Buyers or Sellers Challenge a Home Appraisal?
While you cannot demand an appraiser to change the home’s value on the appraisal report, there are ways for buyers and sellers to challenge a home appraisal. If you notice mistakes on your report, you can notify your lender to either get the mistake corrected or restart a second appraisal process or getting a reconsideration of value. Keep an eye out in your report for relevant comparable sales, factual errors about the home, or any missing information.
Working closely with your lender and/or a real estate professional can help you understand the appropriate next steps if you have concerns about an appraisal.
Why Does the Home Appraisal Matter Before Closing?
Appraisals are only one part of real estate transactions. They can be a routine step toward closing or can introduce a decision that neither the buyer nor seller expected. Understanding what the appraisal means, what it does not mean, and what options may be available when an issue arises can make the process much easier to navigate.
Buying or selling a home in the Augusta, Georgia area? Sherman & Hemstreet can help you through the transaction from contract to closing. Contact our team to get started.