A home appraisal serves as a step in the home buying or selling process that relies on an external factor: the expert opinion of a stranger. Banks use these experts to determine how much a property is worth, thus determining how much the bank would be willing to lend to a buyer. This part of the mortgage process is important. If the seller is asking for $ 450,000 but the appraiser values the property at $ 375,000, then the home is seriously overvalued and the bank will not be willing to loan the full sale price. A bank does not want to be stuck with a property that is valued less than it is invested, so the appraisal not only protects the buyer, but also the bank.
Each lender generally provides a list of properly certified and licensed appraisers that the lender primarily works with. This group of approved appraisers guarantees consistent results and changes, but the cost is up to the borrower, which is usually added to the mortgage. Appraisers have two different approaches when evaluating a property: the sales comparison approach or the cost approach.
The comparison method compares other houses in the neighborhood (that have recently sold) with the house in question. Adjustments are made for lot size, square footage, and other specific components and characteristics.
The cost approach is generally used for new properties and is based on the cost of reproduction. The baseline here is what it would cost to build an identical house in the event that the house was destroyed. This cost is taken into account with the value of the land and depreciation to determine the total value.
In a final evaluation report, the following information is generally included:
• a description of how the appraiser determined the property’s value
• a description of the house and its features and the improvements that have been made
• any notes on structural problems, leaky basement or foundation problems
• notes on the surrounding neighborhood (area)
• comparative market analysis to support any appraisal summary
• photographs or maps that present relevant aspects of the property
So what do you do if an appraisal is lower than the sale price of the house? There may be several remedies to fix what appears to be a low appraisal. Certain factors, such as necessary repairs or maintenance, can affect the final attached value, so if these corrections can be made, a second appraisal may be requested. However, if the appraisal does not seem like an accurate representation of the property’s value, or the appraiser is unwilling to compromise or listen to your concerns, you can go to your state’s licensing agency and file a complaint. If neither of these options is suitable, the seller may be able to lower the sale price of the home or, as a final response, the buyer may account for the difference in appraisal and sale price through a larger down payment.