When buying or selling a home, one of the most critical aspects of the transaction is the appraisal. While many people may focus on factors like location, price, and condition, the appraisals play a pivotal role in determining the fair market value of the property. Whether you’re a buyer securing financing or a seller hoping to get the best possible price for your home, understanding how appraisals work and how they can impact your home buying and selling process is essential.
At Brandi Washington – Engel & Völkers, we help our clients navigate every step of the real estate journey, from finding the right home to closing the deal. As experienced agents, we understand the nuances of the appraisal process and can guide both buyers and sellers through this crucial part of the transaction. In this article, we’ll explore how appraisals affect your real estate transaction and provide valuable insights into how you can be better prepared.
The Role of Appraisals in Home Buying
When you’re purchasing a home, especially with the help of a mortgage, the lender will typically require an appraisal to determine the market value of the property. The appraisal is an objective assessment conducted by a licensed appraiser, who evaluates the home’s condition, size, location, and comparable sales in the area. The goal is to ensure that the property is worth the amount the buyer is planning to borrow.
Appraisals provide security for the lender. If the buyer defaults on the loan, the lender needs to ensure they can recoup their investment by selling the property. The appraisal helps the lender avoid lending more than the home is worth, which is why it plays a crucial role in the approval of a mortgage loan.
At Brandi Washington – Engel & Völkers, we guide our buyers through the entire process of securing financing, including preparing for a home appraisal. Our team can help you set realistic expectations and advise you on how to proceed if an appraisal comes in lower than the expected value.
What Happens If the Appraisal Comes in Lower Than Expected?
In some cases, a home’s appraisal might come in lower than the buyer’s offer price. This is a relatively common occurrence, and it can cause significant issues in the home buying process. If the appraisal is lower than the offer, the lender will only approve a loan for the appraised value, not the agreed-upon price.
For example, if you’ve agreed to pay $350,000 for a property, but the appraisal comes in at $330,000, the buyer faces a dilemma. They would need to make up the $20,000 difference in cash or renegotiate with the seller to lower the price.
In some cases, the seller may be willing to lower the price, but this is not always guaranteed. Alternatively, the buyer can come up with the additional funds to cover the gap, or they could opt to walk away from the deal if it’s no longer financially viable.
How Sellers Are Affected by Appraisals
For sellers, an appraisal can have a major impact on the sale price of the home. If the appraisal comes in lower than the asking price, the buyer may struggle to secure financing or may try to renegotiate the sale price. Sellers, therefore, may have to make difficult decisions, especially if they were hoping to get a certain price for their home.
While sellers cannot directly influence the appraisal, there are some steps they can take to ensure they’re in the best position for a favorable appraisal. First, it’s important to ensure the home is in excellent condition before listing it. Minor repairs, like fixing leaks, painting, and updating outdated fixtures, can increase the home’s appeal and value.
A well-maintained home may have a higher appraisal value, which can help avoid complications during the buying process. At Brandi Washington – Engel & Völkers, we offer sellers guidance on preparing their homes for the market, ensuring that they are set up for a successful appraisal and sale.
The Importance of Comparables in Appraisals
When appraisers evaluate a property, they often use comparable sales (comps) as a basis for determining value. These comps are recent sales of similar properties in the area. The size, condition, and location of the property are all taken into account when the appraiser selects comps for comparison. If comparable homes have recently sold for higher prices, the appraisal value may reflect that, which is beneficial for both buyers and sellers.
As a buyer, understanding how comps affect the appraisal can help you make better decisions when negotiating a purchase price. For sellers, using the right comps can help you set a realistic asking price. Setting a price that’s too high for the market may result in a low appraisal, leading to a frustrating situation where you can’t secure the desired sale price.
How Appraisals Affect the Closing Process
Once the appraisal is completed and accepted by the lender, it is one of the final steps before closing on a property. If the appraisal supports the agreed-upon sale price, the loan will typically be approved, and the transaction can proceed. However, if there’s a significant discrepancy between the appraisal and the offer price, it may delay the closing or cause the deal to fall through.
Both buyers and sellers should be prepared for the possibility of delays, especially if the appraisal comes in lower than expected. In this case, it’s important to have a contingency plan in place. At Brandi Washington – Engel & Völkers, we work closely with our clients to ensure that any issues arising from an appraisal are addressed promptly, so you can continue the process with minimal stress.
Conclusion
Appraisals are a crucial part of both the home buying and selling process. For buyers, an appraisal helps ensure that the property is worth the price they are paying and that the lender is making a sound investment. For sellers, the appraisal can impact the final sale price and can sometimes be a point of negotiation. Understanding how appraisals work and how they affect the process can help both parties prepare for any potential issues that may arise.
At Brandi Washington – Engel & Völkers, we guide our clients through every step of the buying and selling process, including navigating appraisals. Whether you’re buying or selling a home, having an experienced real estate team by your side can make the appraisal process smoother and ensure that your transaction goes as planned.
FAQs About Appraisals
Q: Do appraisals always come in at the asking price?
A: No, appraisals are based on the objective value of the property, which may be higher or lower than the asking price. It’s not uncommon for appraisals to come in lower than expected, especially in a hot real estate market.
Q: Can a seller challenge a low appraisal?
A: While sellers cannot directly influence the appraisal, they can provide the appraiser with additional information, such as recent home improvements or comps that may not have been considered. If the seller believes there was a mistake in the appraisal, they can request a reconsideration of value.
Q: How long does it take for an appraisal to be completed?
A: The appraisal process typically takes about 7 to 10 days, but this can vary depending on the property and the appraiser’s schedule. The report is then submitted to the lender for review.