Monday, October 07, 2019

By John Voket I was recently reminded by Realtor() Kathy Hamilton about how important it is to understand the workings and purpose of real estate appraisals. She reminds buyers that as a potential closing date draws closer, lenders will likely want to verify the home’s value with an appraisal. This might sound nerve-wracking, but Hamilton says don’t worry - appraisals protect you from overpaying.

To demystify the process, Hamilton broke down a few important basics:
- If you’re taking out a mortgage to buy a new home, the lender will require an appraisal. The appraiser gives an independent estimate of the property based on recent sales data of similar homes. 

- When your mortgage amount matches the appraised price of the home, you know that you have a good loan-to-value ratio — and aren’t paying more than you should be.

Hamilton says an appraiser will physically measure the home’s square footage and visually inspect the entire property, noting things like:
- Floor plan functionality and the number of bedrooms and bathrooms
- Age of the house and its overall appearance
- Value of any recent updates or remodeling
- Size of the lot
- Desirability of the surrounding neighborhood

Comparing all of that against similar nearby homes sold within the last 90 days, the appraiser arrives at your home’s value.

The federal Consumer Finance Protection Bureau (CFPB) says if your appraisal is less than the sale price, get a copy of the appraisal. According to the CFPB, the appraisal is a professional opinion as to the value of the home you want to purchase. Appraisers have to follow rules in arriving at the value of a property, and lenders are not allowed to interfere with the appraiser's judgment. The lender is required to send you a copy of the appraisal. If you haven't received a copy, ask your lender for it. And what if your dream home was valued for less than you expected?

Hamilton says your lender won’t approve a loan for more than the appraised price. So if you still want to buy the home, she would advise negotiating a lower price with the seller, or challenging the appraisal and paying for a second opinion. 

Or just walk away. Hamilton knows that's hard to do, but ultimately the priority should be you getting the right home at the best price... right?

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