What Are Appraisals On A House?
As local homebuyers in Knoxville, we often get asked about appraisals and how exactly those work. We often buy houses from homeowners that have had their previous contract fall through due to appraisals. This article will focus on what an appraisal is and how they are determined.
The definition of an appraisal is “an unbiased professional opinion of a home’s value. Appraisals are used in the majority home buying situations, including sometimes during the refinancing of a home. It is used whenever a mortgage is involved because a lender does not typically want to have the home be priced way above value due to issues, such as collateral. The reason for home appraisals is to make sure the selling price is accurate and relative to what the house is worth based on its condition, location, and features. A house appraisal is typically done to mainly protect the lender, so it is in the lender’s interest to have this completed well. Property appraisals are very influenced by the current trends of the housing market and recent similar property sales.
Key Factors That Impact Appraisals
- Number of bedrooms and bathrooms
- Floor plan functionality
- Square Footage
- Condition of the home (like is there foundation issues, cracks, damages, leaks, etc.)
- The quality of landscaping, lighting, plumbing, roofing, etc,
- Finishing details of the home (like the type of countertops/ cabinets, appliances, flooring)
What To Do If An Appraisal Comes In Low?
Sometimes an appraisal can come in lower than the selling price of the property. So what should you do? You have several options in a situation like this, and when agents, buyers, and all those involved work quickly and efficiently to solve this issue, it can be resolved within a few days. There are often appraisal contingency clauses included in property contracts due to possible appraisal issues like having a low appraisal.
The first option is to rebut the appraisal, but there has to be enough good data to back up this claim. This usually works much better with smaller, more locally owned appraisal businesses rather than larger, nationwide ones. It is also almost never likely to be rebutted if your property loan is a VA property loan. You can also ask for a new appraisal, but for this to happen you must have good reasoning. It is not just simply because you are unhappy with the original appraisal.
Another option is to negotiate a lower selling price with the seller. This is not a good option in a seller’s market because sellers typically have several offers as backups. However, sometimes a real estate agent does manage to negotiate well and get the sale price to drop. So this is not unheard of, but it is not an extremely likely situation if the housing market is hot and thriving.
Changing your financing is another option is an option the buyer can do to help deal with an appraisal that came in too low. The way housing loans are set up, there is usually a certain percentage required for the down payment and the rest is offered in a loan based on the appraisal, so when an appraisal comes back lower than the sale price, there are unexpected costs added to the housing budget. It is not very likely, but one might be able to provide the extra cash out of pocket. To deal with this, one can change their type of mortgage loan to make it better fit their own personal financial issues.
Final Thoughts On Home Appraisals
Appraisals typically only take 20 minutes to 2 hours, so they are major time consumers. The bigger the property, the longer the appraisal will be. Then afterwards it will take a few days around 3 to 5 for the written report to be finished. The home buyer is the one who buys for the home appraisal, and it can cost them anywhere from a few hundred to a thousand dollars. Appraisals are usually one of the first steps in the closing process. There are federal guidelines that are a direct result of the 2008 housing crisis that are intended to eliminate inflated appraisals, so it can be increasingly difficult to challenge low appraisals. Remember! Usually, home appraisals go smoothly and are a simple box to check in the house buying process.
If you want to avoid the hassles of a buyer using financing, we buy houses in cash. We never ask for repairs and we don’t depend on appraisals or banks! That makes your home sell a seamless transaction that could put more money in your pocket as well!
*These articles are not a substitute for legal advice. All real estate transactions should be reviewed by an attorney that is knowledgeable about the laws and rules of your state.