Essential things to know about real estate appraisals

Home appraisals are unbiased professional insights into a home’s value based on the property’s condition, location, and features. A professional assessment is required for most real estate transactions to confirm the property is worth at least as much as a mortgage lender will lend to purchase the property.

Similarly, when a homeowner wishes to refinance an existing mortgage, the lender usually orders an appraisal to ensure they are not extending a loan for more than the property is worth.

How an Appraisal Impacts the Homebuyer

When a prospective homebuyer makes an offer to purchase a home, in most instances, they have already secured mortgage pre-approval for up to a certain amount of borrowed funds. Any sales offer, minus the down payment, should be no more than the borrowing limit.

After a seller accepts an offer to buy, a crucial step in the closing process is a lender-ordered appraisal, a professional assessment of the home’s value.

Professional real estate agents often recommend the prospective buyer’s offer include an appraisal contingency. According to Rocket Mortgage, with an appraisal contingency, the buyer can withdraw from the transaction without losing their earnest money if the appraisal comes in lower than the amount offered. Without this contingency, the prospective buyer could forfeit their deposit.

If the professional appraisal is equal to or higher than the offer to buy and the lender approves, the transaction can proceed, barring any other offer contingencies.

Should the home’s appraisal be lower than the offer, the lender may halt the process. The prospective buyer may then renegotiate with the seller for a lower price acceptable to the lender. The seller may comply, realizing subsequent buyers may also have difficulties finding financing at the proposed asking price.

Occasionally an appraiser can make an error. If the buyer or seller believes the initial assessment is wrong, either party can request a second appraisal. However, the lender typically requires some compelling evidence to order a second appraisal.

Sometimes, if the buyer thinks the initial appraisal is low, they might present additional information or point out an oversight and request the appraiser recalculate their initial appraisal. An experienced real estate agent who understands the market and has comparable sales data for the neighborhood can advise the buyer if the initial appraisal is reasonable or if a second one is necessary.

How Appraisals Impact Home Sellers

After making an acceptable offer, assuming the buyer has pre-approval, an appraisal is typically the only thing standing in the way of closing.

A knowledgeable real estate agent can advise the seller on setting an asking price. Armed with extensive market data, the real estate agent can suggest an optimistic yet realistic price for the property that will align with an appraisal.

It is important the seller prepare the home for sale by tidying up, painting as needed, cleaning, and making repairs that could negatively affect the appraisal.

It is helpful if the seller is prepared to answer questions the appraiser may have about the property. Additionally, it can be useful to have a list of recent upgrades for the appraiser.

If the appraisal comes in lower than the sales price, it is time for the seller to consider if they have overvalued their property. Alternatively, the seller could wait for an all-cash buyer to make an offer, hoping the offer will not require an appraisal. However, that can take time and may be an unrealistic goal since no one is likely to pay more than the property’s worth.

While overvaluing one’s property is common, an objective, unbiased real estate agent can help by suggesting a listing price they believe to be in line with a fair appraisal. Often, homeowners underestimate the impact neighborhood deterioration and distressed sales can have on their property.

Real Value of an Experience Real Estate Agent

An experienced real estate agent helps homebuyers and sellers with the complexities of a real estate transaction, which can include:

  • Assessing the value of a property.
  • Providing expert advice, support, and guidance through each step of a real estate transaction.
  • Understanding and navigating rapidly changing housing markets.
  • Submitting and countering offers to buy or sell a home.
  • Saving buyers and sellers time, money, and headaches.

A vital first step when buying or selling a home is finding and working with a professional real estate agent.


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