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Why You Need An Appraisal!

Why do you need an appraisal, and what happens if that appraisal comes in low?

For sale purposes, if you are getting a loan on a home, the bank is going to require an appraisal on that home. The purpose of this appraisal, is to be sure that the price that you are paying for that home is fair, equitable, and reasonable for that home. They want to know that if you were to default on that mortgage, and the bank had to take the house back, that they can reasonably recover their investment that they’ve put into that property and be able to sell the home again and get their money out of it. For these reasons, they require an appraisal.  

Now, an appraiser’s going to pull 3 sales, and they’re looking for the homes that are most comparable to the property that you’ve written the contract on. They’re going to be making adjustments to the sales price of the homes that they’ve selected, to make it more comparable to the subject property which you are buying. Now, different appraisers may select different homes, but if the home is in an area where homes are very similar, it shouldn’t matter. The appraisers will still come up with the same adjusted value range for that home. A problem might arise when the home is either unusual for the neighborhood, or it’s in a rural area. Sometimes homes in rural areas are remarkably different from each other, with different size, different condition, a different amount of acreage, or different features such as a barn. So, the values could come out different, depending on the appraiser and which comparable sold homes they select. 

What happens when the appraisal price comes in lower? Let’s look at the 4 options.

The first option is the seller could agree to sell at the appraised value price.

Or, option 2, the buyer could agree to bring the difference in the appraised value and the purchase price to closing in cash if they really want that house. 

The 3rd option is that you could agree to some compromise. For example, if a house was listed at $300,000, and a buyer brought an offer at $310,000, they’ve just inflated the price. This could be because they wanted the seller to give $10,000 allowance for flooring, or they wanted $10,000 for buyer closing cost for the seller to pay at closing. Well, because the price of the home was inflated artificially for those reasons, the buyer & seller now have to decide whether to bring the price back down to $300,000 for the sale to go through, so they can get the full value that they will loan on the home.

The fourth option is one we always want to try and avoid, and that is to withdraw, or terminate, the contract. With this decision, the buyer has to find another home, and the seller has to put their house back on the market. At this point, they have both invested time and money getting to this point of the appraisal. The appraisal doesn’t usually happen for 2 to 4 weeks after you’re under contract. So the buyer has spent money on the home inspection, on the appraisal, and they’ve invested time and energy in this home. The seller has taken the house off of the market as well and has lost time on the market. So, it is really in everybody’s best interest if we can come to some compromise to make it still work out for both the buyer and seller.

We handle situations like these all the time, and we are always thinking outside the box. Our priority is to make it work for both the buyer and seller. 

If you have questions about appraisals, or if you’re thinking about buying or selling, give me a call! My team and I are on standby 7 days a week, 9am to 8pm, ready to help you take the smoother road to sold!

Or, if you’re wanting to sell QUICKLY, check out our Guaranteed CASH Offer Program, where we will get you a Done Deal!

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