By definition, appraising a home is the act of assigning monetary value to a property to determine its “fair market value”. It is a subjective judgment of value albeit by a licensed professional. An appraisal generally takes place within 3 weeks of the execution of the agreement of sale. The mortgage lender place an appraisal order with an appraisal servicing company and an appraiser is assigned the job from a pool of real estate appraisers.
For a home buyer, an appraisal establishes a value for the home for both you and the lender, The lender is keenly interested in the current market value of the property in the event that the buyer defaults on their mortgage and they in turn become the property owner. You as a buyer want the home to appraise for the agreed upon sale price in order to finalize the transaction. An appraisal determine whether the price negotiated by buyer and seller accurately reflects the value of similar homes.
Appraisals are performed by licensed home appraisers and the method most commonly used to determine a home’s value is known as the Sales Comparison approach.
Via the Sales Comparison appraisal approach, a home appraiser will compare your home to similar homes in the immediate vicinity with similar physical attributes. In the majority of appraisals homes being used for comparative purposes must be located within the same school district – exceptions can be made in such cases as a unique historical property where there are no comparable homes in the area – be of similar size and possessing similar features, and having been recorded as sold within the past 6 months.
Examples of such common traits that are used for comparison purposes are number of bedrooms, number of bathrooms, age of home, quality of home finishes, and square footage. Location matters as well. For instance if two homes are exactly alike but one is located on a main road with a double yellow line that home will be appraised at a lower value due to it’s less than favorable location compared to the home within a neighborhood on a less traveled street.
Appraisers use recent sales data of similar homes, and will assign a value to the property based on available data, and with adjustments made for variances between homes. A home with a finished basement, for example, may be adjusted to a higher value; as might a home with recent renovations.
As a buyer what can you do if the appraisal comes in low?
– Dispute the appraisal
The dispute process known as a “rebuttal of value” starts with the examination of the appraisal report. Check for key items such as usage of comparables older than 6 months, missing features of the subject property, incorrect square footage of the subject home or comparable homes, location of comparable homes – are they within the same school district?
If relevant differences and/or new data can be uncovered the mortgage loan officer will submit an appeal to the appraiser with the new data and a negotiation process begins.
An appraisal rebuttal is difficult to win, estimates are that only 3% to 5% of appraisals go into rebuttal, and of those only 10% get adjustments.
– Order a second appraisal
It will cost you – you are not only paying for the first appraisal but you’ll pony up for any additional appraisals as well. They can range between $450 and $800 depending on the property. You also could end up with a value in line with the first appraisal.
– Negotiate with the seller
Perhaps buyer and seller can and are able to both budge a little on the price.
You might go back to the sellers and ask them to reduce the price or split the difference. As a buyer you can contribute additional money in order to cover the gap between the appraised value and the amount the lender will loan to you. Contractually the seller is under no obligation to do so, but they may prefer to do this rather than take a chance of losing you as a buyer, and starting over again. They may reason that is likely that another buyer will have the same issue, so the seller might be better off renegotiating with you unless they have other offers.
Sellers might be more willing to cooperate, especially if a Federal Housing Administration (FHA) mortgage is involved. A FHA appraisal and it’s value are “locked in” to the subject property for six months.
– Walk away from the deal
There is always the option of terminating the contract if a resolution can not be reached. This is a difficult decision, as a buyer you have already shelled out maybe $600 – $700 for home, termite, and radon inspections and perhaps $500 for the appraisal, but you may have no other course of action.
Wallingford PA Real Estate – Wallingford, PA 19086
