What is an appraisal?

A home appraisal is an unbiased estimate of the true (or fair market) value of what a home is worth. All lenders order an appraisal during the mortgage loan process so that there is an objective way to access the home’s market value and ensure that the amount of money requested by the borrower is appropriate. The appraisal can include recent sales information for similar properties, the current condition of the property, and the location of the property, i.e., insight as to how the neighborhood impacts the property’s value.

While you pay for the appraisal, it is done to protect the lender, not you the buyer, and the report is usually sent directly to the lender. You can request a copy be sent to you as well, but it doesn’t always happen automatically, so you have to ask for it.

 

How is it used?

When deciding your loan amount as a percentage of the property price, the lender will pick the lower of the Sales Price or Appraised Value. If the property appraised at same or higher than the sales price, you can get the same loan amount you applied for.

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If the property appraised for less, the lender will reduce the loan amount to match the value of the home according to the appraisal. Though it can cause everyone involved in the transaction to panic; note that there are several options for the deal to happen still. If you wrote your offer to include an appraisal contingency, requiring the property to be valued at the selling price or higher, you can:

  • Walk away from the deal
  • Negotiate with the seller to reduce the selling price
  • Dispute the appraisal: find out what comparable sales were used and ask your agent if they are appropriate, often your agent will be more familiar with the area than the appraiser and can find additional comps to support a higher valuation.

What happens if I removed the appraisal contingency when I wrote the offer?

When you remove the appraisal contingency in a competitive market, you are essentially promising the seller that you will close the deal whether the appraisal comes in at value or not. If you choose this option you will be required to put more money down to cover the difference between appraised value and the selling price depending on the type of loan you applied for.  Check with your lender to see if this is an option for you.

In conclusion, be careful before you decide to remove or waive the appraisal contingency.  Discuss in detail with your lender and your Real Estate Agent what options you have and ask for full disclosure on each option, ask questions, make sure you understand and choose wisely.

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Theresa Miller, Broker/Owner
themmteamrealty@ca.rr.com
(310) 713-8459
http://www.themmteamrealty.com

We are Leroy & Theresa Miller with The M & M Team Realty. We are Residential Realtors working with clients to purchase, sell or lease. We specialize in clients who need to sell or purchase property due to life changing events (i.e. a divorce). We understand the urgency and sensitivity of the clients needs.

We are The M & M Team Realty, “The Answer to Your Life Changing Events”