What You Need to Know About Appraisals When Buying a Home
By the time the appraisal happens, you may already be picturing yourself living in the home. Maybe you know where the furniture will go, which room will be yours, or what it will feel like to finally get the keys. So hearing that the appraisal came in low can feel like someone just put a question mark over something you’d already started thinking of as home. It’s an important development, but it doesn’t necessarily mean you have to give up the house. First, we’ll understand what the appraisal changes and then decide what feels right for you.
Appraisal issues delay some closings, but most buyers don’t spend much time thinking about the appraisal until there’s a problem. If you’re financing the purchase, your lender may use the appraisal to help evaluate the property supporting your mortgage. If the value comes in below the price you agreed to pay, I’ll help you understand your real estate options while you and your lender work through what it means for the financing.
WHAT IS AN APPRAISAL?
An appraisal is an independent professional opinion of the property’s value based on market information and analysis. Depending on the assignment, the appraiser may consider the home’s location, size, condition, features, improvements, and comparable sales.
It’s different from a Comparative Market Analysis (CMA) prepared by a real estate professional. A CMA helps us understand how a home fits within its market. The appraiser has a different responsibility: developing an independent opinion of value for a particular purpose, often in connection with your loan.
WHY IS AN APPRAISAL NEEDED?
Your lender may need a valuation of the home because the property will serve as collateral for your mortgage. Depending on the financing, that may involve a traditional appraisal or another acceptable valuation method.
For a typical first-lien mortgage, you’re entitled to receive a free copy of the appraisal or other written valuation obtained by the lender. Take some time to read it. If the result surprises you, understanding how the appraiser described the property and which comparable sales were used can help you ask better questions.
If you’re paying cash, there isn’t a mortgage lender requiring an appraisal, although you may still decide that an independent valuation would give you additional peace of mind.
WHAT IF THE APPRAISAL COMES IN LOW?
A low appraisal can feel like someone is telling you that the home you love isn’t worth what you thought it was. But that’s not quite what is happening. You and the seller agreed on a price for this particular transaction. The appraiser is providing an independent opinion of value for a specific purpose, often related to your financing.
If those numbers don’t match, we need to understand what the difference means before deciding what you want to do about it.
- You may have the option to walk away. If your contract contains an applicable appraisal or financing contingency and its requirements are satisfied, you may have the right to terminate. Having that option doesn’t mean it will be the choice you want to make.
- You and the seller may be able to find some middle ground. The seller might reduce the price. You might decide you’re comfortable contributing part of the difference. Sometimes both sides give a little because the seller still wants to sell and you still want the home. I’ll help with that conversation and make sure you understand what any proposed compromise means for you.
- You may decide the home is worth additional cash to you. If your lender permits it and you have the funds available, you may choose to cover some or all of the difference yourself. Just remember that loving the home and protecting your financial comfort can both matter at the same time. We don’t have to ignore one to honor the other.
- There may be something in the appraisal worth another look. If you see a factual error, an important property feature appears to be missing, or the comparable sales raise legitimate questions, talk with your lender about whether a reconsideration of value is appropriate. I can help you identify relevant property or market information that may be useful in that conversation.
REMEMBER WHAT YOU’RE REALLY DECIDING
When you love a home, it’s easy for the question to become, “How do I keep from losing it?” I understand that feeling. But I also want us to ask, “Does buying this home under these new circumstances still feel right?”
We’ll consider the size of the appraisal gap, what the seller is willing to do, what additional cash would mean for you, how difficult it may be to find another home you like as much, and how this purchase fits into the life you’re planning after closing.
If the appraisal comes in low, you won’t have to sort through those questions alone. I’ll help you understand the contract, talk with the seller’s agent, look at the market information with you, and make sure you know what choices are available while your lender guides you through the financing side.
Maybe we find a way to keep moving toward those keys you’ve already been imagining. Maybe the new information tells us this isn’t the right home after all. Either way, I want the decision to be one you feel good about after the emotion of the moment has passed — because getting the home matters, but feeling good about how you got there matters too.
