Appraisal

It is likely that most buyers who will be looking at your home will need to obtain financing, so the lender will order an appraisal.

Any buyer who is obtaining financing – that is, a buyer who is taking out a mortgage to purchase a house – will be required by the lender that a property appraisal be conducted on the home prior to loan approval.

An appraisal is ordered by the buyer’s lender, who places the order electronically via a third-party system that randomly assigns an appraiser to the job. In order to protect against mortgage fraud, neither the lender, the buyer’s agent, the buyer, the listing agent, nor you the seller can have contact with the appraiser before he makes his appointment to visit the home.

The importance of the property appraisal is paramount to the lender and can make or break a real estate contract.

If the property appraises at or above the agreed-upon purchase price set forth in the contract, the lender will make the loan and the home, barring any further negotiation complications, can close.

However, if the appraisal comes in low, there are a couple of options:

  • the seller can agree to lower the purchase price to the appraised value in order to get the lender’s approval of the loan
  • the buyer can bring the difference (the contract price minus the appraised value) to closing in order to secure the home
  • the seller and buyer can split that difference (the contract price minus the appraised value) in a mutually agreed-upon fashion in order to secure the lender’s approval
  • the buyer can unilaterally terminate the contract and walk away without any penalty (given that this occurs prior to the expiration of the Appraisal Contingency Period)

In rare cases, a seller can appeal an appraiser’s findings and the appraiser may revisit the report and make changes, although he is not required to do so.

Where low appraisals used to be the stuff of myth, they had become more common in the days post-bubble-burst. While low appraisals seems to be happening less frequently, they are still a possibility, as the real estate market continues to recover. In instances where the appraiser will not revisit and revise his findings, some sellers are left bewildered and confused, the contract on their home dissolved and their house back on the market. This makes a case for realistic pricing from the beginning of the listing period – paying close attention to the comparable sales and to the prices the market will bear.

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