In a home appraisal, an expert working for the buyer’s lender determines whether or not a home is worth the price about to be paid. A lender wants to ensure the price of the home is a fair price.
Who Completes the Appraisal?
A licensed appraiser will evaluate the home based on a list of criteria that include statistics and other important information. These professionals are not making judgments on a home’s staging or décor choices. They will use facts and data to determine a fair price for the home. This data will include the recent sales prices of your neighbors’ homes and other important factors that will contribute to the overall value. The condition of the home and its location will also contribute to the appraisal price.
Price Discrepancy from a Buyer’s Perspective
Sometimes a home is appraised for less than the agreed sale price. This could mean that you, as the buyer, will have to make up the difference out-of-pocket. Your bank pays only what the appraisal determines the home is worth. Many times, though, a seller will agree upon a lower selling price due to a lower appraisal.
There are multiple safeguards in place to ensure the appraisal price is the fairest price. It is important to arm yourself with the appropriate knowledge going into the appraisal. You should know the local “comps” (comparable homes) for your potential neighborhood, for starters. Your real estate agent can help you by determining whether or not the asking price was fair to begin with.
It is possible for your agent to communicate with the appraiser before things are finalized. An agent who is plugged into the community will know the extenuating circumstances of nearby home sales if applicable. If special circumstances led to lower home prices, your agent can communicate these to the appraiser. This could help to have an outcome that pleases all parties involved.
It’s important that you study the report made by the appraiser. You could see important mistakes that affect the appraised price. Understanding the reasons for low appraisals will help give you the knowledge you need to understand the appraised price. Homes in the neighborhood could be increasing at a rate not yet shown in comp prices. A home could be in a less-than-desirable portion of a neighborhood, and will be reflected in the price. Although finished basement spaces are a perk many buyers will love, an appraiser has to value “below grade” living area at a lower price than that at ground level. Several factors come into play when determining the true value of a home. This is why it’s important to do your homework and allow your agent to educate and advocate for you.
Price Discrepancy from a Seller’s Perspective
Your agent will be able to walk you through the next steps if your home appraises for less than your list price. This is a possibility in markets where sellers court multiple offers that go well above the original asking price. Don’t fear, this isn’t a deal killer, you do have options. The first option is to agree upon a new sale price with the buyer. Another option is to compromise with the buyer. You could make up the difference in closing costs or down payments.
The final option, if the buyers aren’t willing to work with you, is to put the house back on the market. If you’re unhappy with the deal and your buyers aren’t able or willing to meet in the middle, it’s possible to start over by listing again. You could potentially receive a cash offer in the future that doesn’t require an appraisal, or hope for a higher appraisal in future.
The appraisal can feel like one of the trickiest parts of the home selling and buying process. It’s important to follow the lead of your agent to know what your best steps forward will be. Trusting the guidance of our agents is a great way to know you’ll make the best choice no matter your appraisal outcome.
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