5 Buyer Cautions for Home Appraisals
Home appraisals are a critical, high-stakes part of the home buying process. Because they come near the end of the process, home appraisals often determine whether or not buyers will make it into a home to which they’ve already become attached.
Lenders base their mortgages on home appraisal value, not on the seller’s price. When an appraisal is lower than the seller’s purchasing price, buyers are left to make up the price difference themselves, negotiate a new price with the seller, or relinquish their desire for the house.
Here are five cautions to help you through your home appraisal:
Know what you can’t do
When it comes time for the home you are interested in to be appraised, neither you nor the seller has much influence over the outcome. Power of appraisal rests solely in the hands of a third party, the appraiser, and the appraiser follows a strict set of guidelines determined by lenders. While these guidelines are meant to protect buyers from appraisal fraud, in which sellers or lenders pressure the appraiser to inflate the home’s price so that a deal can be pushed through, they can also cause appraisers to give a house a conservative price. The appraiser doesn’t want to be accused of fraud.
Start with a reasonable purchasing price
In order to pass smoothly through the appraisal process, you want the price of the mortgage you ask for to match the appraiser’s value of the house. While you have limited control over the appraiser’s value of the house, you do have some control over your purchasing price, the price your mortgage will ideally cover. Check prices of properties that are similar to the house you want and in the same neighborhood. Talk to your broker about how to calculate the price of a reasonable offer. Don’t rely solely on what the seller says his property is worth.
Request a local appraiser
Not all appraisers are created equal. Requesting a local appraiser can help to ensure that your purchasing price matches the appraisal value. For example, recent foreclosures in a neighborhood can drive down the apparent value of properties in that neighborhood, but a local appraiser will know to take this into account when evaluating the sale price of comparable properties.
Communicate with your appraiser
Your real estate agent can help justify your purchasing price by informing the appraiser of issues that may have lowered price of comparable properties. A recent foreclosure should be communicated to the appraiser so that he doesn’t mistake the short sale of a house worth $100,000 for $49,000 as indicative of the value of properties in your neighborhood. Likewise, a hasty divorce or a death in a family might cause properties to be sold for less than market value. Maybe home value in the neighborhood has skyrocketed recently, making purchase prices from six months ago incomparable. Or maybe the home you want overlooks a nature reserve, while a similar, recently sold home overlooked a parking lot. Your agent should bring all of this to the attention of the appraiser on the day of appraisal.
If necessary, ask for a re-evaluation
If you did everything within your power to gain a high appraisal, only to be given a value lower than your need, ask to see the appraisal report. Carefully go through the report, looking for mistakes or omissions. If you find any, you can consider asking for a re-evaluation. You might get a higher appraisal on the second round, but you will have to pay the appraisal fee twice!
By the time you are ready to ask for a home appraisal, you might have been on the house hunt for months, but don’t less steam! Make a final push of your best effort through the home appraisal process. If you are successful, you are well on your way to closing the deal.