Buying a new home is a multi-step process where all the pieces have to ultimately fall into place to drive through to the final sale. One important component in the process is the home appraisal. If you’re planning on buying a new home in the near future, here are a few questions that might help you understand the appraisal process – and what can be done if an appraisal turns out to be lower than expected.
Why are appraisals conducted?
Since your mortgage lender is taking a risk on financing your home purchase, verifying that the home is worth what you are paying for it is essential to make sure that you (as well as the lender) are getting your money’s worth. A low appraisal can cause a lender to reconsider the amount of your loan.
What does an appraisal consist of?
Appraisals assess the existing features of a house including square footage, updates or improvements, the overall condition of a home, and any major damage that may be present. An appraiser also collects data about the neighborhood and location of the home, such as comparable nearby properties and recent sales and foreclosures in the area.
Once all of this information is in hand, the appraiser synthesizes it into a report that ultimately assigns a value to the home. Since home values fluctuate according to the market as well as the changes to the property itself, each appraisal has an “expiration date,” usually for a few months, after which a new appraisal must be conducted in order to update the home’s value.
Joe Flaherty with Flaherty Appraisals in Stillwater, MN said “the appraisal can depend on the quality of the home which adds to market appeal and increases salability and marketability.”
When asked if things like ceramic floors and backsplash add value to the home, Joe said “We take those things into consideration for additional value and may make an adjustment, if not-we will weigh it in the overall appraisal and final value estimate. We always try to ask the agent if they can provide the properties used as comparable to consider in sales price”.
“We take those things into consideration
for additional value and may make an adjustment,
if not-we will weigh it in the overall
appraisal and final value estimate.”
Joe Flaherty-Flaherty Appraisals
My home appraised for less than sale price.. Now What???!
Many factors contribute to the determination of a home’s value. A lower-than-expected appraisal can cause a lender to reconsider financing, which is why an accurate appraisal is crucial. Sometimes appraisals fail to take all relevant information about the property into account, but in other instances, a property may simply be overpriced.
What can I do if my home appraised for less than sale price?
If it looks as though your financing may fall through due to a low appraisal, you can try to renegotiate your contract with the seller. If you have included an appraisal contingency in your sale contract, you may even be able to cancel the contract altogether. But if you’re hoping to work something out in order to salvage the purchase, you’ll need to try to get the seller to agree to accept a lower purchase price that reflects the appraisal.
Another option is that the buyer could put down more money than originally anticipated to keep the deal “alive.” There are some circumstances where the buyers absolutely want the house in question and are willing to put more money down if the appraisal comes in lower than expected.
For example, some homes after some minor or major updates and improvements could significantly rise in value if they are located in the right area and for that reason some buyers are willing to put more money down knowing the investment may be worth the risk.
Since an appraisal is an assessment based on the opinion of one individual, it’s possible that a second appraisal conducted by another appraiser may differ. If you feel that the initial appraisal has omitted or misrepresented key information, you can ask your lender for a second appraisal. An appraiser with experience in your market will be able to deliver the best determination of the home’s value. If asking for a second appraisal, make sure that your argument for doing so is composed and logical rather than a knee-jerk response to disappointing news. You should be prepared to pay for the new appraisal.
As with many features of a home sale, a low appraisal is something that can be overcome via negotiation and compromise. A good lender wants your business and will work with you to get you into a new home, even if it means addressing the issue of a low appraisal.
John and Chris Kawohl are realtors with RE/MAX Results in Woodbury, MN and are licensed in Minnesota and Wisconsin. We are always ready to talk or stop by your home and welcome any questions you have! Feel free to contact us at KawohlTeam@Results.net or call us at 651-269-3308 or 651-343-8445. KawohlTeam@Results.net or give us a call at 651-269-3308 or 651-343-8445