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Today, we tackle a few very important topics. Many people are unaware of what an appraisal is and why it's necessary during a real estate transaction.
When an appraisal is ordered by the bank during the selling process, a licensed appraiser will perform a report to determine whether the sale price on the contract is a fair market price. Usually, this is just a formality, and the sale price comes in close to what the home is appraised for. However, sometimes issues arise.
While the TRUE market value is what a seller is willing to accept and what a buyer is willing to pay for a home, the bank still wants to make sure they are protected from lending too much. The appraiser comes in to offer a third-party opinion of the contract price and determines whether the value can be justified.
Occasionally, we see the appraised value come in less than the purchase price. Why do we see that? Well, in a rising market where prices are rising and homes are going under contract for more money, appraisers are bound to use past sales history; if home values are rising quickly, by the time an appraiser gets their hands on past sales history, the value of the home in question has already risen substantially. This results in an under-appraised home, and since the bank will only loan money based on that appraised price, this creates a problem for the borrower who needs the full amount to complete the sale.
If this happens, there are a few different ways this could play out. One thing that can happen is the buyer can dispute the appraisal. If it's found that poor comparables were used to find the value, sometimes the appraisal will be adjusted to make it come in at the value it should. In other circumstances, we've seen the borrower leave their lender and go to a different one and start the process over. Often, the second appraiser will get the value to come in where it needs to be.
The appraisal is an opinion of value, and sometimes two different appraisers find different values. Typically, the buyer doesn't have to leave their lender, as appraisers will sometimes adjust their report if it doesn't come in where it needs to be. Also, the seller will sometimes agree to decrease the price of the home to the appraised value. Another option is for the buyer to agree to pay cash for the difference between the appraised value and the seller's price. Of course, meeting in the middle is yet another way to avoid having the deal fall apart.
Most of the time, we see homes appraise, but it's better to know your options should a low appraisal come in. If you have questions about this topic, or if you need real estate assistance of any kind, don't hesitate to reach out to us. We're proud to be your Athens real estate resource!
