Understanding the appraisal process
Q: When my husband and I made an offer on a house, there were two other offers and we had to go a little over the asking price. Now I’m nervous about the appraisal. What if it doesn’t come in high enough, or what if it comes in higher than our offer?
A: First of all, it won’t come in over your offering price. Your lender wants to have an appraisal only to verify that the house isn’t worth less than the agreed upon price between you and the seller.
Appraisals protect you from overpaying for a home. It is important for you and your husband to understand the workings and purpose of real estate appraisals.
If you are taking out a mortgage to buy a new home, the lender will require an appraisal. The appraiser gives an independent estimate of the value of the property based on recent sales and data of similar homes.
When your mortgage amount plus your down payment matches the appraised price of the home, you know that you have a good loan to value ratio – and you aren’t paying more than you should be.
An appraiser will 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 homes sold within the last 90 days, the appraiser arrives at the 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.
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.
If your dream home was valued for less than you expected, your lender won’t approve a loan for more than the appraised price. So if you still want to buy, I advise negotiating a lower price from the seller or perhaps bring in extra cash and the seller also reduces the price. I have had buyers and sellers meet in the middle.
You also can challenge the appraisal or pay for a second appraisal. Though it is hard to do, you could just walk away.
Ultimately, the priority is getting the right home. In my experience, there is usually a compromise solution.
Q: I have my dream home in escrow. Now what?
A: Buying a house is a thrilling experience. But before you can cross the threshold, you have to get through the closing – which, unfortunately, can be a confusing and stressful process.
While every homebuyer’s situation is different, there are some steps everyone can take to make sure the closing goes as smoothly as possible:
Have cash available. You will need the money to pay some of the closing costs. Be sure to build in a 10 percent buffer for final costs that come in higher than estimates. Make sure the extra cash is easily accessible well ahead of the closing.
Settle the inspections. Review the inspections and make sure you are satisfied with the results. If there are any issues that need to be addressed, decide how they are going to be handled between you and the seller. It’s critical that all decisions regarding the inspections are finalized before you close. You may have no further recourse afterward.
Have all documentation ready to go. Ask your Realtor and lender to provide you with a list of every piece of documentation you need for the closing. Make sure it is complete and gathered well ahead of closing day.
Preserve your credit score. Keep in mind that your loan approval was based on your credit score at the time you signed the purchase agreement for your home. If you’ve taken out any new loans or debt since then, such as a credit card or a car loan, this could affect your credit score and jeopardize the home loan. Wait to make any large purchases until after the closing, and make sure you’re paying everything on time.
Keep your employment steady. Don’t change jobs or decide to quit and start a business prior to closing. You need a steady income and employment during the closing process.
Send your question for a future column. Email Lynne@LynneFrench.com. French is the broker/owner of Windermere Lynne French & Associates. Contact her at 672-8787 or stop in at 6200 Center St., Clayton.