Everything to Know About Home Appraisals!
When you’re buying, refinancing, or selling your home, a home appraisal will always be one of the key components of the transaction. Simply defined, a home appraisal is an unbiased opinion from a professional appraiser on a home’s value. Home appraisals are done to determine whether the home’s contract price is appropriate given the home’s condition, location, and features. Regardless of whether you’re a buyer, seller, or homeowner thinking about refinancing, you’ll want to understand how the appraisal affects you.
Buying a Home
When you’re in the market to buy a home, and you’re under contract, the appraisal will be one of the first steps in the closing process. If the appraisal comes in at or above the contract price, the transaction proceeds as planned. If the appraisal comes in below the contract price, however, it can either delay or derail the transaction. As the buyer, you have an advantage to negotiate with the seller to lower the price. While appraisals help buyers avoid overpaying for homes, a seller may feel that a low appraisal is inaccurate and be reluctant to drop the price, which could likely require a second appraisal.
Selling a Home
Because lenders will not approve a loan for more than a home is worth, a low appraisal for a seller would motive them to lower their home’s price to get it sold. Distressed sales in the surrounding area, also known as property/assets sold in an urgent manner, can lower a home’s appraisal value. If a seller believes that their home’s value has been dragged down by the sales prices of nearby foreclosures and short sales, they might be able to convince the appraiser that their home is worth more if it’s in significantly better condition in comparison to those properties.
Refinancing a Home
If a homeowner is refinancing a conventional mortgage, an encounter with a low appraisal can prevent them from refinancing their home. The home needs to be appraised at or above the amount the owner wants to refinance for a loan to be approved. This differs, however, with FHA mortgages, as a home owner can refinance without an appraisal through the FHA Streamline program.
Regardless of whether you are in the market to buy a home, to sell a home or to refinance, a basic understanding of how the appraisal process will help you with your homeownership goals.
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