What you need to know about appraisals and how they might affect you.
If you’re thinking about buying or selling a home, you need to be familiar with appraisals. An appraisal is an independent third-party evaluation of a property. During this evaluation, an appraiser will come to the seller’s house to verify that the information on the listing is accurate and confirm the value. This is similar to what Realtors can do to assess your property, but it is more in-depth, and will significantly affect the value of a home.
Appraisers will consider a wide variety of factors, including the square footage, the number of bedrooms and bathrooms, the quality of construction, finishes, and location. Also, they’re going to compare your home to similar ones in the area and take note of any upgrades that you’ve made.
Once they have done the appraisal, an appraisal gap can occur, which happens when the property’s appraised value does not match the contract price, either above or below it. If you are the seller, an appraised value above the contract price won’t affect you. However, if the value is below the contract value, that is when something needs to be done, as it creates an issue for the buyer’s financing.
In this situation, there are many avenues you can take, including contesting the appraisal, introducing new comps, renegotiating the terms of the contract, and asking the buyer to pay the difference. Oftentimes, these gaps happen because of rapidly increasing prices or not having enough comps in the area. That’s why it’s very important to you have an expert on your side to help you navigate things.
Another thing that some sellers consider is having a pre-appraisal done, which is when they get an appraisal done before listing the property or starting a contract. This can sometimes be useful, but most of the time I caution people against it. First, the appraisal is normally seen as the buyer’s responsibility, especially if they’re using financing. The buyer is supposed to pay for it to make sure it’s truly an independent third-party evaluation.
Second, appraisals can be expensive, and you’re already going to have to pay commissions and other fees. Third, they’re going to vary depending on the conditions, and you won’t know that ahead of time.
Overall, know that appraisals are an integral part of real estate transactions. If you have any questions or would like to talk to me about how an appraisal is going to affect you, please feel free to reach out! You can call, text, or email me anytime.