Often times home buyer's are confused between a home inspection and an appraisal. Easy way to remember the difference between the two is that a home inspector reports on the condition of the home and an appraiser determines the value of a property.
An appraisal can make or break a real estate transaction. So many things go into pricing and selling a home which will hopefully result in receiving a solid offer. It seems like the stars have to be aligned just perfectly for all these things to happen and it all can come to a screeching halt by the appraisal. An appraiser can take down a real estate deal in a blink of an eye. Super frustrating for everyone involved in the transaction. Relatively speaking, real estate agents and appraisers are using the same data when determining value of a property. With that being said, there are many opinions in any given transaction as to the true value of a home. There is the price the seller wants to get for the home, the value the listing agent (seller's agent) will determine by data available from the MLS, the price the buyer's will pay for the house, the price the buyer's agent will try to get for the house and then that of the appraiser.
So, who hires the appraiser? Your lender. The appraisal is needed to determine value which in turn tells the bank how much to let your borrow. In other words, the appraisal will reassure the lender that the property you are buying is truly the real value of the home, thus determining the risk the lender (bank or investor)takes in lending their money for this property. This is why is it so important for the appraisal to meet the agreed upon sales price or exceed that price. When the appraisal comes in lower than the contract price, this is when s**t hits the fan. Especially if the buyer is depending on financing the home purchase.One would think that if two real estate agents can provide comparable properties that have recently sold in the same geographic area for about the same price in the past three months that the appraisal will be right around the contract price. Not always the case. Lately, I have heard many many real estate agents and lenders seeing appraisals coming in $5000 to $20000 less! That is crazy. All that we have learned as real estate agents on how to price homes seems to be thrown out the window.
So why would a LOWER price cause such an issue? Because often times the buyers, sellers and their real estate agents have come to an mutual decision of the value of the home. A seller won't want to take $20,000 less than the contract price and then the buyer loses out on a house because an appraisal can not support the contract value. Even if the real estate agents dispute the appraisal with the data they used to price the home it is rare that appraisers will change the value of the home after the appraisal has been submitted to the lender. And, certain appraisals stay with the property for 6 months so that puts the seller in a bind as well because they can not get financed! UGH.
Knock on wood out of four transaction currently in escrow I had an issue with one appraisal coming in under the contract price. Fortunately, the seller's agreed to come down in price so we could proceed with the transaction, but I know that I was VERY lucky in that situation.
If I can be of assistance to you in your next Real Estate transaction or just have questions contact me right now at camillekooi@gmail.com!
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*Disclaimer: I do not claim to be a professional writer nor am I am proficient in where to place commas, when to italicize (or is it appropriate to italicize or use parenthesis?) and that my sentences are grammatically correct. I am merely releasing all the thoughts that are in my brain and sharing them with you. If you enjoy my posts GREAT but I know they are written with many errors. Taking a creative writing class or a grammar class is next on my “to do” list. I promise. I also like to use double exclamation points!!!! (sometimes more than 2 and sometime a question mark and exclamation point!) I am NOT a licensed mortgage lender, property manager, credit expert, professional negotiator or anything of that nature.. This is strictly "good info" to know regarding Real Estate as I learn it on the job!
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