Appraisal Tips

 

 

 

Traditionally, the sale of a home is contingent upon a satisfactory valuation. We have recently seen a market that has been rapidly appreciating. Therefore, it can be difficult for appraisals to keep pace with rising prices. Even if a seller is presented with a strong offer they must also be aware of the homes appraisal value. A strong offer can disappear if the appraisal comes in below the contract price.

 

Many sellers favour buyers who are able to guarantee their full offer price just in case the property appraises for less. Buyers need to ensure this is a worthwhile investment and will require additional cash upon closing to bridge the gap.

 

It's imperative to understand the appraisal process and how it can be impacted by a highly competitive housing market. 

 

 

Appraisals are performed by an independent authorized appraiser who assesses a property's market value. Mortgage lenders will require an appraisal should the buyer default on their loan. The appraisal offers assurance that the home's evaluation meets or exceeds the borrowed amount for the purchase.

 

Mortgage borrowers are usually expected to pay the cost of an appraisal. When applying for a mortgage it is important to ask your lender about their specific terms. If you are a cash buyer, you may or may not choose to order an appraisal.

 

 

An appraisal contingency allows a buyer to make the closing of the transaction based on whether the property is at or near the purchase price. This allows the buyer to cancel the contract should the appraisal be lower than expected.

 

Low appraisals are more likely to happen in a rapidly appreciating market. Appraisers use comparable sales when determining a property's value. When home prices rapidly increase appraising a home becomes more difficult as the comparables fall short in comparison to the market's current reality.

 

An appraisal gap occurs when a property appraises for less than the contract price. In a more balanced market that could be cause for renegotiation. In today's market sellers have had the upper hand because the current demand for homes exceed the available supply. 

 

Many buyers are willing to exclude the financing condition in a competitive bidding process. If the appraisal comes back lower than expected this can leave a buyer vulnerable. The buyer will need to come up with the necessary funds in order to bridge the gap between the contract price and the appraised value. Buyers may also have to walk away from the deal and potentially lose their deposit.

 

Sellers run the risk of wasted time, a market that has cooled down or having to relist. It is vital that buyers and sellers understand the benefits and risks involved in some of the tactics used in today's market.