{"id":1454,"date":"2021-06-09T10:00:55","date_gmt":"2021-06-09T14:00:55","guid":{"rendered":"https:\/\/www.deeds.com\/articles\/?p=1454"},"modified":"2024-04-25T23:20:00","modified_gmt":"2024-04-26T03:20:00","slug":"navigating-the-home-appraisal-a-buyers-guide","status":"publish","type":"post","link":"https:\/\/www.deeds.com\/articles\/navigating-the-home-appraisal-a-buyers-guide\/","title":{"rendered":"Navigating the Home Appraisal: A Buyer\u2019s Guide"},"content":{"rendered":"\n

You\u2019ve put in your bid for the home you want. Now you await\nthe appraiser\u2019s report. What\u2019s going on behind the scenes?<\/p>\n\n\n\n

How the Appraisal Works in Most Cases<\/h2>\n\n\n\n
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The typical home appraisal relies mainly on local sales\ncomparisons, or comps.<\/em> What will other buyers pay now for a house like\nthe one you\u2019re buying? Whatever price others will pay for similar homes is\nroughly the value of your new home.<\/p>\n\n\n\n

What\u2019s a similar home? The appraiser considers homes within\na certain radius of the one you\u2019re buying, with comparable bedroom and bathroom\ncounts, the same or similar size and construction type. Comparable homes have\nthe same school district or a similarly ranked school district, and similar\namenities nearby. The appraiser studies and compares sales information and\nrecorded documents for the homes. Homes sold in the last three months are\nconsidered the most relevant comparisons.<\/p>\n\n\n\n

Even similar properties are unique homes, of course. Therefore,\nthe appraiser will find enough variety in the data to come up with a range of reasonable\nvaluations. Some comparable properties might have been sold for more than the\nmarket value, others at below-normal prices, and so forth. Once the outliers\nare understood for what they are, an appraiser needs to figure out where your\ndesired house fits among slightly more and slightly less costly properties. <\/p>\n\n\n\n

The expert\u2019s professional discretion explains why, many\ntimes, the appraisal will come back with a valuation very close to the price\nyou offered and the seller has accepted. As long as your agreed-upon purchase\nprice falls within the data-supported range of value calculated by the\nappraiser, a buyer usually gets an appraisal that matches what the buyer and\nseller think the home is worth. <\/p>\n\n\n\n\n\n\n\n

What Happens When the Appraisal Value Falls Short<\/h2>\n\n\n\n
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It can happen. A seller who has overvalued the home must lower\nthe price if the appraisal does not support it. If the seller won\u2019t make a\nprice reduction, your purchase contract\u2019s appraisal contingency can save the\nday. The contingency clause allows buyers to renegotiate for repairs that would\nsupport the purchase price. Then, a new appraisal may stand up to your\nagreement. The appraisal contingency can also allow a buyer to walk away from\nthe deal. <\/p>\n\n\n\n

Alternatively, the buyer can make up the difference, using\nthe funds allocated as earnest money. Or the buyer can agree to drop some of\nthe requests made when the parties negotiated their agreement.<\/p>\n\n\n\n

We note that an appraisal contingency is always important.\nThat\u2019s why government-backed (FHA or VA) loans build it into their mortgage\nloan approval contingencies. <\/p>\n\n\n\n

But it\u2019s especially<\/em> important in places where homes\nare currently experiencing an updraft in bids and sale prices. If the appraiser\nsays the home is worth much less than you\u2019ve agreed to pay, the gap could be a\nlot for you to make up \u2014 and at a time and place where home prices might not be\nsustainable over time.  <\/p>\n\n\n\n

For now, the market is red hot. In today\u2019s low-inventory market, homes in popular metro areas are selling for well above their listing prices. Some buyers are willing to win by making cash offers. As Shelby King reports<\/a> for RealTrends: <\/em>\u201cWith all this money flying around, sellers are accepting sky-high offers from overeager buyers who find they\u2019re at risk of falling into the appraisal gap.\u201d<\/p>\n\n\n\n

This situation creates high levels of risk for the buyer to\ndeal with. So, a buyer who does not have a firm appraisal contingency would be\nwise to ask the real estate agent to help put contractual limits on the amount of\n\u201cappraisal gap\u201d the buyer may have to pay.<\/p>\n\n\n\n

\u261b Can you get a home you\u2019ll love on\nyour terms? Here are the top strategies for Succeeding\nWith Contingent Offers in a Seller\u2019s Market<\/a>. <\/em><\/strong><\/p>\n\n\n\n

What the Lender Needs to See<\/h2>\n\n\n\n

This is the immediate issue. The lender doesn\u2019t want to find\na sizeable gap between the appraiser\u2019s new valuation of the home and the higher\nprice you\u2019ve agreed to pay for it. Here\u2019s why: <\/p>\n\n\n\n