I Have to (Ap)praise You Like I Should
You may have heard of an appraisal before and you might know it has something to do with the value of the home, but what do appraisals mean for you? How will they affect your purchase (or sale?)
Appraisal of this blog post
What’s an appraisal?
An appraisal is an un-biased opinion of the value of a home, done by a professional appraiser. Back when I was studying for my real estate license, I thought being an appraiser sounded interesting too…until I looked at the educational requirements:
To summarize, appraisers REALLY know their stuff.
So what’s the goal?
The goal of an appraisal is to find out how much your house is worth. An appraiser is sent out by your lender to appraise your house, after you’ve agreed to purchase the home (after your inspection is done, etc). Generally, the buyer does NOT attend. The appraiser usually spends 10-30 minutes at the property, taking note of how things look, the condition of the property, utilities, exterior, etc. It’s not quite as in-depth as a home inspection, but they’re trying to get a feel of the whole property. After they’ve completed their inspection, they generate a report describing the condition of the house and comparing it to a few (usually 3 or 4) other sold properties in the area, to generate an estimated value of the house.
What does this mean for me?
The desired outcome of an appraisal is that the home appraises for equal to greater than your purchase price. If you offered $250,000 and your house appraises for $272,000, great! Your bank is able to approve that loan. The problem arises when your house does *not* appraise – say it appraised for $240,000, your bank will not want to approve this loan because you’re offering more money than the house is worth (and therefore the bank is not making a wise investment). What happens in this case? Your best bet is to try and negotiate the price down to the appraised value, and hopefully your seller will be amenable. You could also get the loan for the appraised price and pay the rest in cash (though, again, not always a wise investment). Sometimes, unfortunately, this can ruin the deal altogether. In most cases, if the seller was working with a good realtor, they will have listed the house at an appropriate value for the market.
FAQs, Recap, Extra Info (TL;DR)
Appraisals are ordered by your bank and are done by professional appraisers
You pay for your appraisal.
You always want your house to appraise for equal to or more than your offer price
Appraisals are NOT required if you’re paying in cash
You would generally not attend your own appraisal
Be careful of bidding wars if you’re getting a loan – you may have outbid others for your dream house, but it may not appraise if it’s thousands higher than the list price.
Here is a fairly standard, blank appraisal form if you’re interested in seeing one: https://www.fanniemae.com/content/guide_form/1004.pdf