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First off, what is an appraisal? An appraisal is an expert estimate of the value of something and, in this case, it’s the value of the home you are buying. Appraisals are required if you are borrowing funds, and optional for cash buyers. Your lender will order the appraisal and you will pay for it up front or at closing. This is a closing cost for the buyer.
You already set the price of the house when you signed the contract, so why does the bank need a third party appraisal to determine the value of the property? The mortgage company or bank wants to make sure that the purchase price is equal to or higher than the appraised value.
Why? Lenders use the lower sale price or the current appraisal. They don’t really care what you are willing to pay for a piece of property. If the appraised value is lower than the sales price, you have a problem. However, there are a few solutions.
First of all, you can ask for a review of the appraisal. You could also go back and renegotiate the sales price with the seller. Finally, you could put down more cash out of pocket to match the appraised value.
Appraisals are required if you are borrowing funds.
Now, you may not have enough cash on hand to make up the difference. If the appraised value is a lot lower than the sales price, you may be overpaying for the property.
This is exactly why you need the help of a professional real estate agent to maneuver the ins and outs of your transaction. Stay tuned for part two of our series, where we discuss appraisals from the seller’s perspective. If you have any questions in the meantime, please don’t hesitate to reach out to us. We would be happy to help you!
