How appraisals affect your sale
CONGRATULATIONS on getting through the inspection period. Whew! The next step is the appraisal process. Here is some information on appraisals and how they may affect your purchase.
An appraisal is a written estimate of a property’s market value completed by an appraiser. The appraisal is performed by an appraiser, an objective third party hired by your lender. It’s the appraiser’s job is to give their professional opinion of the market value of a home. While the lender officially hires the appraiser, they do not control the appraisal process, and are forbidden to influence the appraiser in any way. An appraisal is simply the appraiser’s opinion of the property’s value based on their knowledge and evaluation of the property. The value is based upon a market analysis of recent sales prices for similar properties in the area, and the property’s physical condition.
WHAT IF THE APPRAISAL VALUE IS DIFFERENT FROM OUR NEGOTIATED SALES PRICE?
When the appraised value comes in higher than the sales price, usually the sale is not affected. This simply means that the appraiser’s opinion is that the buyer is paying less than the property is actually worth, so the lender will assume that this is a good loan for the lender to make and proceed with the sale. The buyer does not have to disclose the appraised price to the seller.
If the appraised value is less than the sales price, it’s more complicated. Options for dealing with a low appraisal include increasing the buyer’s down payment to make up the difference between the appraised value and the purchase price, or the seller lowering the purchase price to match the appraisal. Sometimes neither of these options work out in which case the transaction will have to be terminated. This is usually very hard on both parties. The buyer loses the money they spent on inspections, but they do get their earnest money returned. As a seller you’re back to square one, you’ve lost some market time, and may have to lower your expectations on what price you can ask for your home.
If all parties agree that the appraised value seems incorrect, we may also try to work with the lender to request an appraisal review or a second opinion if there is additional information such as recent comps that may have been overlooked. If the comps that were used are unlike the subject property due to differences in condition or improvements or if the appraiser is not familiar with the type of home or neighborhood, additional information can be useful in obtaining an accurate appraisal. However, it is often very difficult to challenge and appraisal without very clear evidence that good information was overlooked.