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A home appraisal is basically an in-depth report on a house, created by an expert, known as the appraiser. This appraisal’s primary function is to determine the fair market value of the house being assessed. This market value is reached by taking into consideration several important factors about the property including:
- The floor area or size of the living space.
- The market value of comparable nearby homes.
- The features and facilities of the neighborhood.
- The year of construction of the property.
An appraisal is generally performed for the execution of most home loans, and also sometimes for home refinancing transactions and almost done in case somebody is planning to purchase the house. In the real estate world, after the buyer and the seller have settled on a purchase price, the lender involved will have the appraisal done by an independent third party, the appraiser. The buyer is the one required to bear the cost of the appraisal. This cost can range from $200 up to $500.
Also, appraisals can be reviewed. Appraisers may sometimes make mistakes and an appraisal may differ significantly from expectations. In this case, a review of the appraisal may be done. It rarely happens that the appraised value exactly matches the price on offer. An appraisal usually has two different outcomes, each with a significantly different impact on the transaction.
Let us assume that the buyer and seller have mutually agreed on a purchase price of $120,000, but the value of the property according to the appraisal, comes out as say, $125,000. This is actually good news for the home buyer. Assuming that all other factors fall into place, one can then proceed to disburse the loan as planned with the added benefit of $5,000 in spontaneous, built-in equity already in the property.
However, if the negotiated price is $120,000 and the appraisal comes out with a property value lower than this amount, for instance, $110,000, then it can create a significant delay in this deal. This can result in a lot of inconvenience for both parties, the buyer as well as the seller. The buyer has in this case, offered to pay a higher amount than the home is technically worth, according to the appraiser. Due to this, the lender cannot give the buyer a loan of more than what the home’s worth is. The only possible solutions are to either increase the down payment to reduce the total loan amount or to try and negotiate a lower price with the seller. Apart from this, the home appraisal can be reviewed to modify the appraisal amount.