The Property Appraisal
If you require a mortgage in order to purchase the property for which you are in contract, your lender will demand an appraisal. If this is the case, your purchase agreement most likely includes an appraisal contingency. This contingency will be lifted once an appraisal is completed and the resulting report shows the property is worth at least the amount you are offering to pay for the home.
Your mortgage lender will choose an independent appraiser and The Dawn Thomas Team will be responsible for scheduling the appraisal with the seller’s agent. Dawn or a member of The Team will meet the appraiser at the home and remain there while the appraisal is taking place.
Appraisers are third-party contractors that are certified or licensed and knowledgeable in real estate. To conduct a thorough evaluation of the home, they will need to walk through the residence. They will be evaluating the property, noting anything that can alter the home’s value, either positively or negatively. The appraisal also includes factors such as neighborhood growth and housing trends as well as overall market conditions.
Depending upon the size of the residence, a walk-through appraisal can take a few hours to complete with the final outcome being an appraisal report. This report can take up to a week, and when complete, is given to the buyer’s lender, who shares it with the buyer and their agent. Your lender may request a rush appraisal, which results in the report being delivered within a few days after the appraisal is conducted.
If the appraisal shows the home is valued at or slightly above what you’ve offered to pay for the home, the lender is secure in knowing their investment is sound. They can proceed with underwriting the full amount of your loan and the appraisal contingency will be removed.
There is always a chance that the appraisal could come back below the offered price. If the price difference is significant, you will have to decide whether to make up the difference, negotiate a reduced price, or back out of the contract.
In the event of a low appraisal, Dawn will most likely go back to the seller’s agent to renegotiate the price. For example, if the offer price is $1,000,000 but the appraisal came in at $950,000, your lender will not fund your full loan amount. As such, we will request a reduction in price of $50,000. If the sellers are only willing to come down in price by $25,000, then you will have to determine if you’re able to come up with an additional $25,000.
The appraisal may also highlight certain things that are bringing down the price of the property. In this situation, it may benefit us to request specific repairs be made and have the property reappraised once they are completed. (Advanced comprehensive inspections can help to alleviate this issue.)
If we have a loan or appraisal contingency in place and the house fails to appraise at the offered value, you can walk away from the deal without penalty if we are unable to arrive at a mutually satisfactory arrangement with the sellers on a price reduction.
But, if the appraisal comes in at value or we are able to renegotiate the sales price with the seller, this contingency is removed and we forge ahead! Now, it is time to give your landlord notice.