If you have not sold or bought any real estate lately, then you may wonder how an appraisal works. It is important to understand appraisals since the appraisal can literally halt a real estate transaction – including a sale or a mortgage refi – in its tracks.
Do All Banks Require an Appraisal for Approval?
Let’s say that you find a home that you really like, and you and the seller have reached an agreement on price, based on the property’s market value. You have already gone forward with a home inspection. Now it is time for an appraisal to be made of the home.
The appraisal is a tool that is used to establish the property’s true market value. This true market value is the sales price that the property would bring when being offered in a competitive and open real estate market. Most lenders require that an appraisal is made when you take out a mortgage. This is because the lender wants to be sure that they will be able to sell the home for enough to recoup the amount they loan you, should your home loan enter default.
Isn’t That What A CMA Is For?
A comparative market analysis, also known as a CMA, is not the same things as an appraisal. The CMA is typically used by the real estate agent in order to properly price the home, based on market trends and homes that have sold in the area in recent months. An experienced real estate agent will often prepare a CMA that values the home at close to the price that a trained appraiser will. However, the appraisal offers a lot more details about the property, and is required by the bank in order to consider the loan.
An appraiser is a licensed professional who has completed the required training and put in hours and hours as an intern in order to become familiar with the real estate market. Some banks have their own appraisers that work only for them, or they may contract an appraiser who works independently of the bank. If the bank allows you to choose an appraiser, it is always smart to go with an appraiser that the bank recommends or is familiar with. Otherwise, the results might be subjected to more extensive review and hold up the process of getting your loan.
Appraisers Are Supposed To Be Objective!
All appraisers are supposed to be objective, and the appraiser should have no connection to any of the persons involved in the transaction, including the buyer and the seller. You may be asked to pay the appraiser, or the amount of the appraisal may be included in closing costs. Sometimes the bank will pay one-half of the appraisal fees on your behalf.
While the bank may approve you, until the appraisal report comes in, your loan is not certain. Should the property appraise for lower than the sales price, the loan can be declined. Appraisals are not home inspections, but the appraiser will note any problems that they see. They will not check for problems, and are not trained to. Therefore, if you are a buyer, don’t count on the appraisal as a determination of the condition of the home. Your inspection should do that.
And don’t go into panic mode if the appraisal comes in under the asking price. Oftentimes, the problems can be corrected. Your real estate agent can help you on that end!
This guest blog was supplied by Kimberley Joy Kelly a Realtor in Palm Springs. If you’re looking to buy a home and have questions about an appraisal or the home buying process, you can contact Kimberley on her website by clicking here. You may also want to learn more about short sales and the short sale process when buying, which you can learn by checking out Kimberley’s short sale information section.
