HOME APPRAISALS: how they work
If you are paying cash, you do not need a home appraisal…however if you are financing the property, a home appraisal will be required before the lender will approve money for your purchase.
Home Appraising is not a science; it is an OPINION of value, which can vary depending upon the person doing the appraisal. If you hire 3 appraisers to appraise the same property, typically you will get 3 different answers.
This is how a home appraisal works: the appraiser evaluates the property by reviewing the recent sales in the neighborhood to make comparisons. They will compare the number of square feet, bedrooms, parking garages, pool, location and any other marketable features. A property that backs up to a shopping center will not be valued as high as a property on a lake or backing up to a conservation lot. Appraisers may not give much consideration if the property is upgraded and in top condition, however they will lower the value if the property has deficiencies.
If the property is unusual with limited or no recent comparables, the appraiser will have to use comparable properties farther away and the appraisal becomes more unpredictable.
If your instinct tells you that you are getting a real steal on the property with a price way below market value, do not expect the property appraiser to raise the numbers to a higher value. All appraisers know how much you paid and they will justify only the purchase price. If they bring the property value much higher than the contract price, the lender would then question the sale and probably request another appraisal to review the first one. Besides, the lender will only lend money on the purchase price or appraised value…whichever is LESS.
If the property appraiser’s report comes in with a value less than expected, these are your options:
- Ask the seller to reduce the price to appraised value.
- Request another appraisal.
- Modify the terms of the loan for a different loan-to-value ratio.
- Pay the shortage in cash.
- Choose not to buy the property.
The appraisers that are active today work for corporations that give stringent scrutiny not to “over-value” and send them to appraise property in areas and cities that they are not familiar with, so it is not uncommon for them to under value a property. A low appraisal does not necessarily mean you overpaid.
Making a decision on the best course of action to take if the appraised value is lower than needed can be tough decision. Seek out the help of an Orlando Buyers Agent to help you evaluate the “big picture” and choose your best option.
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