An appraisal is an important number in the process of buying a home. The appraisal will tell the seller, lender, and buyer how much a home is worth. Since the purpose of an appraisal is to protect the lender and buyer from overpaying, it is usually part of the closing process of a home purchase. A licensed appraiser will consider the size, location, and condition of the home to decide the home's value. Other factors taken into consideration may include the number of rooms in the home, size of the property, and value of recent home sales in the area.
To ensure a fair appraisal, it is important that the appraiser must an impartial third party who has no interest in the outcome of the sale. If the appraisal value meets or exceeds the asking price, the home sale can continue as planned. However, sometimes the appraisal has a lower value which may slow or stop the process.
Who Requests an Appraisal?
Anyone involved in the process of buying or selling a home could have an interest in having it appraised. In an effort to negotiate the best deal, a home may be appraised more than once to reach an agreeable purchase price. While it is usually not necessary to have a home appraised multiple times, any of three involved parties may ask for an appraisal for different reasons.
- The seller may have the home appraised to support the asking price when the house is put on the market. While it's not required for a seller to have an appraisal, it might be helpful in determining the actual value of the home.
- The buyer or a real estate agent contracted by the buyer may request a separate appraisal in hopes of negotiating a lower price. Local real estate agents have general knowledge of similar sales in the area. It's possible to consider an outside appraisal if the asking price is unusually high.
- The lender is likely to request an appraisal before approving the loan for the purchase of the home. In the event that the buyer can't complete payments on the loan, the lender will sell the house to recoup the loan total. If the home was overpriced, the resale value will not pay for the full price of the original loan.
- A homeowner may also request an appraisal when they are hoping to refinance their home.
An over-inflated appraisal occurs when the seller's appraisal that determined the asking price of the property is considerably higher than market value. If you're buying a home, the implications of an over-inflated appraisal could be significantly more than you simply agreeing to pay more than you'd hoped for a home you've already fallen in love with.
Over-inflated appraisals are a type of mortgage fraud that occur in the effort to help a seller get more money for the home, or a buyer get a better position to finance mortgage payments. Lenders protect themselves from this type of fraud by ordering a separate appraisal.
By the time you reach closing your home sale, you may be prepared to pay what the seller is asking for the home. However, a lender isn't likely to be so quick to agree to this idea. Your lender may require the seller to reduce the price or refuse to approve the loan. As a buyer, you can seek another appraisal or seek additional funds to pay the difference in asking and appraisal price.
A loan officer can help you understand the importance of an accurate appraisal. At First Savings Mortgage, our loan officers specialize in residential lending. Our team of experts can help you work out the details of this important purchase so you will be able to enjoy your dream home.
Please note, by refinancing your existing loan, your total finance charges may be higher over the life of the loan.