If you’re like many home-sellers, you know that when a buyer makes an offer on your home, the buyer’s lender will send an appraiser to check things out. But how important is the appraisal? This guide explains.
How Important is a Home Appraisal?
The home appraisal is very important – not only to you, but to your buyer. Lenders use appraisals to determine how much a home is worth; most notably, they do so to make sure the home is worth what the buyer wants to pay for it. After all, it’s the lender’s money at stake.
Lenders want to appraise properties so they don’t accidentally give a buyer more money than a home is worth. Statistically, buyers are more likely to walk away from a mortgage when a home is worth less than what the buyer paid for it. That results in the lender losing money – and lenders wouldn’t be in business very long if they weren’t conscientious about their bottom lines.
Find Out How Much Your Home is Worth Now
Who Appraises the Home?
The lender typically chooses its own home appraiser. Often, lenders have a group of appraisers they regularly work with. However, lenders don’t pay for the appraiser’s services; the buyer does. (In some cases, such as when a seller pays some or all of a buyer’s closing costs, the seller ends up paying for the appraiser’s services.)
How Does an Appraiser Determine Value?
Appraisers use comparable homes in the same area to determine how much a home is worth. These homes – called comps – must be very similar in size, amenities, and location in order for the appraiser to make an accurate valuation. For example, a four-bedroom home in one city will be worth a different amount in another city; likewise, a four-bedroom home and a two-bedroom home typically have far different values.
What Happens if the Appraisal Comes Back Higher Than the Asking Price?
If an appraiser determines that a home is worth more than what the seller is asking (and, by extension, more than the buyer is asking to borrow), the lender probably won’t have a problem letting the buyer take out a mortgage loan. The buyer is getting a deal, at least according to the numbers, and that means the lender sees the purchase as an investment on the buyer’s part. Lenders know that people tend to hang on to homes – and make all their mortgage payments – if they stand to make a profit in the future.
What Happens if the Appraisal Comes Back Lower Than the Asking Price?
If the appraisal comes back lower than the asking price, you may encounter issues with the transaction. For example, if you’re selling your home for $400,000 and the buyer has asked to borrow $350,000, but the appraiser says your home is worth only $340,000, the lender will most likely only approve the buyer for that amount. That’s $10,000 less than what you’re asking, so it’s up to the buyer to come up with an additional $10,000 (or to ask you to lower your price by that much).
The reason lenders won’t give more than a home’s appraisal value is that they have too much to lose. If the buyer defaults on payments, the bank will then own the house (after a lot of paperwork that they’d rather not have to do). The bank will then need to turn around and sell the home, and throughout the process, they want to make a profit (or, at the very least, break even). However, they’re unlikely to make a significant enough profit to make up for the defaulted payments. Most lenders just feel it’s better to avoid the problem altogether by refusing to lend more than a home’s appraised value.
Are You Buying or Selling a Home in Midland, Texas?
Use our site to search homes for sale in Midland and all of our surrounding areas. Unlike the “big name” sites out there, our site is directly connected to our local MLS and is updated faster. By creating a property manager account you can stay on top of the newest homes for sale and get price change alerts so you can stay ahead of other buyers and beat them to the best deals!
In the meantime, check out these 1-click searches:
Leave A Comment
You must be logged in to post a comment.