Home appraisals are a critical step in the home-buying process, ensuring that you pay a fair price for the property and that your lender feels confident about the investment. Whether you’re a first-time buyer or a seasoned homeowner, understanding how appraisals work and what to expect can empower you during your home purchase. This guide will explain the appraisal process and inevitably what may happen when the real estate market surges again following an anticipated increase in sales activity.
What Is a Home Appraisal?
A home appraisal is an unbiased estimate of a property’s value conducted by a licensed appraiser. This estimate is based on several factors, including the home’s size, condition, location, and comparable sales in the area. Lenders require appraisals to ensure the home’s value justifies the loan amount requested by the buyer.
The appraisal process can be described in these four steps.
Ordering the Appraisal
After your offer is accepted and you’ve applied for a mortgage, your lender will typically arrange the appraisal. The cost, often ranging from $500 to $700 or more, is typically paid upfront by the buyer as part of the closing costs.
Property Inspection
The appraiser visits the property to assess its condition, measure its dimensions, and note any upgrades or issues. They also consider external factors, such as neighborhood amenities and market trends.
Review of Comparable Sales
Appraisers compare the property to recently sold homes in the area that are similar in size, style, and condition. These are known as “comps.”
Appraisal Report
The appraiser compiles their findings into a detailed report, including the estimated value of the property and the data supporting their conclusion. This report is then sent to the lender.
What Happens After the Appraisal?
If the appraisal matches or exceeds the offer price, the transaction can proceed as planned. Your lender will use the appraised value to finalize the loan terms.
If the appraisal is lower than the offer price, the buyer and seller must renegotiate.
Options include:
- Asking the seller to lower the price.
- Paying the difference out of pocket.
- Challenging the appraisal with additional data or requesting a second appraisal.
Things generally go smoothly in a neutral market and in a buyer’s market. Once the market shifts back to a seller’s market, the impact of the surge is most evident in the appraisal.
When the real estate market surges, characterized by a high volume of sales and rising home prices, the appraisal process can become more complex and slower due to increased demand for appraisals. Here’s what to expect:
- Delays in Scheduling: With more transactions occurring, appraisers may face heavy workloads, leading to delays in scheduling and completing appraisals.
- Challenges with Comps: Rapidly rising prices can outpace the data available from recent comparable sales, making it difficult for appraisers to find relevant comps that reflect the current market.
- Increased Discrepancies: Buyers and sellers may see more instances of appraisals coming in below contract prices, as appraised values lag behind market trends.
Here are a few tips for buyers in a hot market:
Be prepared for delays. Work closely with your lender and real estate agent to anticipate potential delays in the appraisal process.
Consider escalation clauses. When competing in a bidding war, include an escalation clause that limits how much you’re willing to go over the appraised value.
Save for potential gaps. Be ready to cover any difference between the appraised value and the agreed-upon price if necessary.
We are all intimately connected to a drastic shift in our market after the circus we endured in 2019-2022. Understanding the appraisal process helps you navigate your home purchase with confidence. While market surges can add complexity, working with knowledgeable professionals can ease the challenges. Always communicate openly with your lender and real estate agent to address any appraisal-related issues promptly and keep your home-buying journey on track.
For more information, visit Shawna’s Thought Leader page HERE.
Shawna Woodward
130 North Belair Road
Evans, GA 30809
Phone: (706) 993-1133 or (706) 399-8707
Website: https://www.mhpaugusta.com/
