What is an appraisal and why do I need one? An appraisal is an opinion of value used for real-estate related financial transactions. Appraisals are required by a state licensed or certified appraiser for most transactions that are being financed by a bank or mortgage company. An appraiser’s report will typically include the type of property inspection, approaches to value required, and any lender-specific requirements.
The National Association of REALTORS® represents approximately 25,000 state-licensed and certified appraisers throughout the country. An appraisal is an important part of the home buying process because it assures the lender the property has adequate collateral to make the loan. NAR closely monitors federal legislative and regulatory issues related to appraisals. NAR has long advocated for an independent appraisal process and enhanced education requirements that allow appraisers to produce the most credible appraisal reports possible.
During the listing process, the REALTOR® uses comparable active and sold properties found in the MLS to figure pricing for your home. This is based on similar properties in proximity to yours. When you receive an offer with an appraisal contingency, the appraiser will do a more in-depth evaluation of your home and find comparable sales.
What if your house doesn’t appraise for the sales price? A low appraisal may seem like a major misfortune when you are selling your house both for you and for your buyer. But low real estate appraisals are more common than you think. A low appraisal does not always mean a canceled deal. It sometimes means you must pivot and renegotiate.
If the appraisal comes in lower than your offer price, it’s either an opportunity for you to renegotiate the sales price with the seller or it’s going to completely derail your home sale, and you’ll have to start over again. Either way, as the buyer, you have some work to do to figure out what this means for your purchase and which avenue to pursue.
What are your options? First consult with your REALTOR® or lender. As the seller, you can request a copy of the report and ask the buyer to challenge the appraisal. This can delay the process and the buyer may not want to proceed. The seller can negotiate the sale price with the buyer, offer seller financing, or cancel the transaction and relist. It is tough to decide between your many options. Lean on your agent’s expertise and advice when discussing each of the below paths you could take.
Make sure you do your research before you place your property on the market. Ask your REALTOR® to guide you through the process and show you the comparable properties they are using to price your home. Be realistic in your pricing. Currently in our Morgantown market, it’s a sellers’ market which means prices could be a bit higher than usual due to the lack of inventory. Fingers crossed that you priced yours right and are currently negotiating multiple offers!
Have a wonderful week! Remember to do good things!
Stephanie Lemley, 2021 MBOR President