Home Appraisals – What a Buyer Needs to Know

You can’t get a mortgage without having the home you want to purchase appraised.  Many buyers look at this as just another annoying hoop they have to jump through in order to buy a house.  However, an appraisal can make or break the sale, so here is what you need to know to make sure your closing date stays intact.

Never lose sight of the fact that a home appraiser hold a huge amount of power.  A lending institution bases your financing on the appraised value of the home, not what the contract says.  If the appraisal comes in less than what you have agreed to purchase the home for, then you would need to make up the difference out of pocket  trulia appraisal is less.  If you’re lucky..very lucky.., the sellers may agree to drop the price of the property to match the appraisal.  After all, if the home appraised low once, it may very well appraise low the next time.  But the sellers could also have another buyer in the wings who can offer all cash, in which case you may be back at the drawing board.   Be prepared; here’s what you need to know about the appraisal process.

Understand what you can’t do

Basically, as a buyer, you can’t do anything to affect the outcome of the appraisal.  There are strict guidelines that all appraisers have to follow which are prescribed by the lending institutions.  “There is a database that all secondary market appraisals go into, called Collateral Underwriter, or CU, that runs the appraiser’s report against a huge database of past appraisals and market data to confirm the findings are accurate,” explains Brian Koss, executive vice president of Mortgage Network.  “It’s a very regimented process.”

The guidelines benefit buyers,  not sellers, as they help prevent appraisal fraud, such a lenders pressuring appraisers to inflate the home’s price  so that a deal can be made appraisal comeback.  However, some appraisers, to avoid being accused of this, appraiser lower than they probably should.  Ideally, homes should appraise at their true market value (http://www. Trulia.com/sell).   But just because you can’t influence the appraisal amount, you aren’t totally powerless.

Know the neighborhood comps

You can always take the seller’s word that the house is actually worth what they say it is.  But most sellers want to get the most they can, so this is probably not a wise choice unless you have a lot of extra money to throw away.  Do your homework and look at what similar homes in the area have recently sold for.  Besides checking recent sales prices on real estate listing sites (trulia.com, realtor.com, zillow.com), ask your broker how the sale price of the house was arrived at.  If there are low comps in the area from short sales or foreclosures, the appraisal value could come in lower than your offer as these tend to bring the valuations down.  Help guard against this by having your agent ask the lender to use a local appraiser who would more likely know the value of the home you want to buy.  You can’t ask for a specific appraiser, but you can ask for an “experienced” or “local” appraiser.

Speak with the appraiser before the report is made

You can request that your agent be on-site when the appraiser is there, or at least communicate with the appraiser.  Your agent can provide printouts of recent sales (both on-market and off-market) that could justify the purchase price.  Also, if your agent knows of any specifics about recent sales that the appraiser may  not be aware of, such as a mold issue in a nearby home that sold for a lower price or a divorce that led to a quick sale, that can be communicated to the appraiser as a reason why some comps could be lower.

Recognize the reasons for low appraisals

Use your knowledge of the area neighborhood details to inform the appraiser, who might not be aware of local factors as intimately as you are.  For example:

Home prices in your area are increasing so quickly that the comps from six months ago don’t yet reflect this improvement.

There aren’t adequate comps in your neighborhood, so the appraiser used comps from a less desirable neighborhood.

The house you want has a much better view than the one that just sold down the street, which overlooks power lines.

Your house has a fully finished basement with a bedroom and bathroom (appraisers are required to use a lower value per square foot for space below grade).

Your house has a pool or high-end landscaping, which didn’t lead to a higher appraisal.

Look over the appraisal report and ask about a revaluation if warranted.

You have the right to see a copy of the appraisal report.  Review this the same way you would review a credit card statement.  If you see errors or omissions, it should be and will be corrected, and can result in a higher value.

If your house doesn’t appraise somewhere in the vicinity of the price you and the seller have agreed on, you can ask for a revaluation.  This tactic isn’t always easy to do and will cost you another appraisal fee.  The exception to this is an FHA appraisal, used if you are getting an FHA loan  fha loan appraisals.  With this type of loan, the appraisal will stand for four months with no option for revaluation.

Hopefully, your appraisal will come out exactly where you need it to be for financing.  If not, the above tips may help get you to where you need to be.  If not, you have gained experience to start your search again.  Good luck.

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