How Does an Appraisal Affect My Escrow?
What is an appraisal and how does it affect the sale of my home?
A real estate appraisal, property valuation, or land valuation is the process of developing an opinion of value for real property. When someone is buying your house and they’re obtaining a loan, they will almost always need to get their own appraisal, unless in rare cases when they are only borrowing a small amount. The appraisal is a very important milestone in the escrow process because the appraised value of the property is a contingency for the buyer, and they can cancel or back out if it does not come in at or above the purchase price. An appraisal is completed by a real estate appraiser who is selected by the buyer’s lender.
Unfortunately, there is no real consistency on how any appraisal will turn out. It is important to know that an appraisal has been considered more of an art than a science, and will almost always depend on the person doing it. 5 different appraisers may look at the same home and come up with 5 different appraised values for it.
If a property appraises for less than the agreed upon purchase price, it can become an issue because the appraised value of the property will directly translate to how much the lender will be willing to finance.
There are 2 possible courses of action before cancelling escrow that you can take when the appraisal comes in lower than the agreed upon purchase price:
The buyer agrees to cover the difference in cost between the appraisal value and the agreed upon purchase price.
The seller agrees to lower the purchase price to the appraised value.
Keep in mind that it never hurts for buyers to ask the sellers to lower the purchase price to the appraised value, but depending on the market and the amount of interest that was received on the property, the seller may not be willing to budge on the matter.
There is never going to be an issue when the property appraises for higher than the purchase price, but it is also important to remember that an appraisal is not public knowledge. Buyers are not required to disclose the specific amount that your property appraised for. If the appraisal comes in higher than the agreed upon purchase price, buyers may neglect to mention the appraised value in hopes of keeping some negotiation power.
Don’t forget that any appraisal can be contested, or you can request a new appraisal from your bank. In some scenarios if you are not able to obtain a new appraisal from your bank/lender, it may be in your best interest to try other lenders.
Providing resources for the appraiser regarding work that was put into your home, or any specific remodel and upgrade costs may be helpful in making the case that your home is worth the price that it is being bought for.
