An appraisal is an unbiased report on the worth of a house in the fair market. Appraisals are performed by a trained and licensed individual. Appraisals are required to ensure that the homebuyer, the home seller and the mortgage lender receive the accurate and true value of the home in question.
The Dodd-Frank Wall Street Reform and Consumer Protection Act ensures that real estate appraisers make their decision based on their own knowledge and judgement, without pressure from lenders or other individuals.
Whether you are buying or selling a home, an appraisal will be a very critical issue in either instance. If you are a buyer getting a loan or the seller, an appraisal will help you determine a fair market value.
The appraiser’s job is visiting the home, measuring the square footage, checking the number of baths and bedrooms, and comparing the findings with housing data provided by local county records to ensure accuracy. The appraiser is not an inspector. He will answer questions required by the lender to the status of the major systems and structures of the house. The appraiser will do a Comparable Market Analysis (CMA) on homes in your area. (Usually homes sold in the past year.) He will compare the pros and cons of your home with others.
BUYER: If you are a buyer applying for a loan, your lender will have an appraisal done (in most cases), for your loan to be approved. If the appraisal amount comes in less than the sales price, the lender will most likely reduce the loan amount to match the value of the home, according to the appraisal. If there is a loan involved, pay close attention to the verbiage, especially No. 11 in the Loan Contingency Exhibit. If the value of the home is too low, there are options: 1. Buyer can agree to bring more money to the table; 2. The seller can reduce the price to meet the lower property value; 3. The parties may agree to split the difference in any combination. If an agreement on the sales price cannot be agreed upon between the buyer and seller, the contract can be terminated.
SELLER: The seller should consider pricing the home closer to the price that the CMA indicates. Listing a home that does not stay within the market price will not appraise, and the home will have to be reduced. The home will stay on the market too long, and a red flag will indicate to the buyer that something is wrong. REDUCTION, REDUCTION, REDUCTION.
Today, the buyer does not have the opportunity to choose their appraiser, unless they are paying cash and would like the property to be appraised. The lender will designate the appraiser. Having an appraiser that comes from another area, can sometimes be a disadvantage. Many things can come into play when not knowing the area.
We had an experience many years ago. The appraisal came in more than a $100,000 under the sale price. Having doubt, we felt that we had arrived at the correct listing price by using the Comparable Market Analysis. Could this be an incorrect appraisal? The property, at that time, was listed in Port Armor (now Reynolds Landing). The appraiser was not familiar with the Lake Oconee area. We questioned the appraisal and found out the appraiser compared the property to Port Armor North, a non-gated, non-golf community. All came out well. If you question an appraisal, please investigate.
REMEMBER THE APPRAISAL MAY NOT ALWAYS BE RIGHT!
Buying and selling a home can be a very complex process. However, an accurate appraisal can help guide you through one of the biggest financial decisions of your life.
THOUGHT FOR THE DAY: One reason why a dog is such a lovable creature is that his tail wags instead of his tongue.