If you are like majority of home buyers who are obtaining a mortgage for their property, your purchase will be subject to a professional appraisal. Read on further to learn more about the appraisal process!
What is an appraisal?
An appraisal is a third party professional opinion of a property’s market value. The appraisal is ordered by the lender during the escrow process and gets randomly assigned to a professional appraiser.
How does an appraiser value a property?
The appraiser has strict and rigid guidelines on how they come to a particular market value. They will usually consider 3 similar home sales nearby within a 1 mile radius that have sold within the last six months.
Who pays for the appraisal?
The buyer is responsible for paying the appraisal cost. Sometimes, it will be paid at closing but more often than not, it is paid upfront. On certain occasions, the lender may pay for it as an incentive to the buyer.
Why is the appraisal important?
Your lender can only give you a loan up to the appraisal amount, so it is important that the appraisal value comes in at the agreed upon purchase price, otherwise you may not be able to purchase the home.
For example, if you were purchasing a home for $750,000 but the appraisal value only comes in at $740,000, the buyer would have to make up the $10,000 difference in cash in order to proceed. Or, further negotiation with the seller to drop the price or both parties meeting halfway may be necessary. Sometimes, your agent can request for a reconsideration of value in hopes that the appraiser may change the appraised value.
In competitive offer situations, a buyer’s offer may contain an appraisal clause which states that in the event of a low appraisal value, the buyer will agree to make up the difference in cash by increasing their down payment. This often gives buyers a competitive advantage and increases their chances of their offer being accepted by the seller against other offers that might not have it.
Are you ready for your home purchase? Contact me today to start!