When it comes to buying or selling a home, you’ll often come across the term ‘home appraisal’. A home appraisal can impact many things from mortgage amounts to the final selling price. In this article, we’ll cover all the basics around home appraisals and how they can impact you as a buyer or seller.
What is a home appraisal?
A home appraisal is an estimate of the value of a home, typically performed by a professional appraiser. The appraised value of a property is determined by a wide range of factors, including recent comparable sales data, market analysis, and physical inspections.
Homebuyers and sellers often request an appraisal to get an independent opinion of the home's value before entering into a transaction. Lenders also order appraisals to protect their investment in a property and ensure that the borrower is not overpaying for the home.
Why are home appraisals needed?
As a buyer, you’re likely purchasing a home with a mortgage. Most lenders will require a home appraisal.
Lenders want to make sure that the property is worth at least as much as the loan they're lending you. They want to make sure that they’re lending you an appropriate amount for the home you’re purchasing. It also helps determine their risk in loaning you the money for your home purchase.
What is the difference between the sale price and the appraised value?
The sale price of a home is the amount of money that a seller agrees to accept from a buyer. The appraised value of a home is the estimated worth of the property, as determined by a professional appraiser. In most situations, the appraised value of the home is at or close to the sales price. But there are some scenarios where the appraisal can come in significantly below or above the sale price.
How a home appraisal can affect selling price
While the selling price of a home is typically determined before an appraisal, occasionally the home appraisal can impact the final sale price of a home.
What happens if your home appraises below the selling price?
No seller or buyer wants to end up with a low home appraisal. But in a competitive or rapidly changing real estate market this can happen from time to time.
As a buyer, it can impact your ability to get the mortgage you need. So when a home appraises below the selling price, the sale can be put at risk.
Here are some things you can do when a home appraisal comes back low.
- Pay the difference: As a buyer, if you happen to have the extra fund to cover the difference between the appraised value and sale price, this is a good way to ensure the sale will go through.
- Renegotiate: The buyer and seller can go back to the negotiation table to land at a price that is closer to the appraised value.
- Order a second appraisal: You can often get a second opinion. Different appraisers use different factors which can impact the appraised value. However, this is often something that needs to be.
- Walk away: Unfortunately, if none of the above tactics are successful – you may need to walk away from the deal. Ideally, as a buyer, you should include an appraisal or financing contingency that allows you to walk away from a deal with no consequences if you’re unable to secure a reasonable appraisal or get a loan.
What happens if your home appraises above the selling price?
In most scenarios, a home appraisal above the sale price is good news for both buyer and seller. It brings both parties one step closer to closing on the purchase agreement. In some circumstances, a seller may want to renegotiate the sale price if an appraisal comes back high. However, this can only happen if it’s accounted for in the initial purchase agreement.
Home appraisals can be stressful for everyone involved in the process of buying or selling a home. However, they are common in any real estate transaction. While home appraisals don’t always impact the selling price of a home, they can in some situations. Working with an experienced mortgage lender and real estate agent can help you make educated decisions throughout the appraisal process.
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