Home Appraisal

What Is An Appraisal and Why Is It Important When Purchasing a Home?

An appraisal is an unbiased opinion used to confirm the value of a property. When you apply for a mortgage, the lender wants to know that it isn’t lending you more money than the home is worth.  So the lender hires an appraiser to help it make the decision whether or not to provide funds for a mortgage. 

An appraiser will take a look at the property, both inside and out.  The appraiser will look at how the home you want to purchase compares to other homes in the area of similar size, style, age and condition.  The appraiser will make adjustments to the subject property to make a close comparison, for instance, adding value for a garage or new roof or reducing value for a smaller yard or fewer bedrooms or bathrooms.  After making these adjustments the appraiser will report the findings to the lender.  It doesn’t matter how much you are willing to pay for the house, the bank will not lend more than the home’s market value.  Appraisals help keep home prices from going too crazy, although in this sellers’ market it may not seem that way!

Many buyers are waiving the appraisal (if their lender will allow that).  What happens if the appraisal value is lower than the price you’ve agreed to pay for a home?  There are a few options: the seller needs to lower the price to the appraised value; the buyer needs to pay the difference between appraised value and purchase price; the buyer and seller can agree to each pay a portion of the difference; or the buyer can walk away from the transaction - if the offer was made with an appraisal contingency. 

Don’t let your home buying dream turn into a nightmare! It is important to work with a knowledgeable Realtor and lender to be sure to structure your offer properly to avoid making a costly mistake that could turn into a legal battle, drain your savings, or both.