5 Things You Need to Know about Appraisals
In 2021, with so much competition in the housing market, there has been a lot of talk about appraisals. Today we will discuss the 5 things you need to know about appraisals. Have you been hearing of people “waiving” their appraisal during this very competitive market? Even though some buyers are waiving them, lenders are still requiring them.
Here are 5 things you should know about appraisals before purchasing your next home.
- What is an appraisal? An appraisal is an expert estimate of the value of a home. Lenders require them so that they ensure they are lending money on a product that is valued at the amount they are lending the buyer.
- How much does it cost? An appraisal cost approximately $400-600 for an average size subdivision lot. If the property is larger than 1/3 of an acre then the appraisal cost will go up. You will pay for the appraisal either up front or at closing…depending on how your lender handles that.
- How does the appraiser find the estimated value of the home? For purchases, an appraiser will have the contract in hand and will know what the agreed upon price is. The first thing an appraiser does is look at homes in the subdivision or nearby that have recently sold. If they can’t find any in the subdivision they will take the search out further away from the home but stay in the same school district, zip code, etc. For more unique or rural properties the search often goes much further out than “typical” subdivision type properties. The appraiser will evaluate the similarities and differences of the comparable sales and will give or take away value as needed to come up with the estimated price.
- How can your agent help when it’s time for the appraisal? This year it has been especially important for listing agents to reach out to appraisers before the appraisal takes place to let them know as much information as possible about the house and the comps and if there were multiple offers. Agents can also let appraisers know about sales that occurred that were off-market that the appraiser may not have access to.
- What happens if the appraisal comes in below the purchase price? If this happens, typically the buyer and seller will work to negotiate a compromise. There are 4 possibilities here: 1. The seller could lower the price to the appraised value. 2. The buyer may love th house so much that they are willing to pay the difference. 3. The buyer and seller could both “give a little” and meet in the middle. Or, 4. The buyer may end up terminating if an agreement can’t be reached. In 2021, we have heard of many buyers that have “waived” the appraisal clause and agreed, up front, to pay any difference if the appraisal comes in lower than purchase price.
I hope this answers any questions you may have had about appraisals and why they are necessary. Please Like and Subscribe! And, if you need any real estate assistance, let us know! We’d love to help!