So you’ve found a home and your offer was accepted, now the fun begins! While there are several steps in the buying process, understanding the appraisal stage is an extremely important aspect of the experience. This is a critical piece of the puzzle and if you’re taking out a mortgage, the appraisal is a big key to a smooth transaction.

What Is An Appraisal?

An appraisal is an estimated calculation of a home’s value, completed by an unbiased professional appraiser. They are completed when purchasing a home to ensure the home price is properly aligned with what the house is worth, and appraisals are also used in refinance transactions for the same reason. The purpose of an appraisal is primarily for your lender to determine how much money they are able to lend you.

What Goes Into the Appraisal Process?

If you’re taking out a mortgage, the lender will order an appraisal to ensure the home’s sale price isn’t higher than what the home is worth. Typically, the borrower is responsible for the appraisal fee, and a licensed appraiser will complete the process. There are a plethora of ethics involved when it comes to being a qualified appraiser; this ensures that the process is unbiased and the value is fairly calculated.  

The appraiser will use the Uniform Residential Appraisal Report (URAR), a Fannie Mae form, to complete the appraisal process. He or she will look at nearby comparable home sales and take a detailed look at the interior and exterior of the home in question to establish a value. Things like the number of bedrooms, bathrooms, and square footage are key to calculating this number. Critical issues with the home will typically decrease the value.  

The report will include all of the findings, plus photos of the home and exterior images of the comparable homes, along with market sales data, tax information, and more. All of this information combined is used to calculate a fair market value.

An Important Fact About Appraisals

You’ve made it to this point and the home you’re hoping to purchase was reviewed by an appraiser – now what? Well, let’s hope the home’s appraised value was equal to or higher than the sale price. A good, knowledgeable real estate agent will usually set a fair price for a home sale, so more often than not, the home will appraise for the asking price. However, on the off chance that the home does not appraise for the sales price, there are several things to consider. A lender will only allow you to borrow what the home is worth, so if the appraisal comes in short, you’ll have to do one of the following:

1- Ask the seller to lower the sale price.

In some cases, when the appraisal comes back slightly under the selling price, the seller will reduce the price to reflect the appraised value. This typically varies depending on how badly and quickly the seller wants to sell the home! Since a few weeks have already passed with the home being under contract, it would not be ideal to start the process over again, and some sellers would rather move forward by making the transaction happen.

2- Pay the difference in cash.

If there is a significant discrepancy in the home’s sale price and its actual value, it may be a bit more tricky to navigate this with a seller. If the seller doesn’t want to lower the asking price, there’s always an opportunity for you to pay the difference between the appraised value and sale price in the form of cash.

If neither of these options works for you, then, ultimately, you may be in a situation where you must walk away from the transaction. While this isn’t fun for you or the seller, sometimes it is the only option.

When you’re ready to buy a home or refinance your existing home, our team of experts at C&F Mortgage is here for you. Get in touch with us today to learn more about the mortgage application process and begin your journey toward homeownership!

Edited 4/9/2021. The information contained herein (including but not limited to any description of C&F Mortgage Corporation and its lending programs and products, eligibility criteria, interest rates, fees and all other loan terms) is subject to change without notice. Restrictions apply. This is an advertisement and not a commitment to lend. C&F Mortgage Corporation NMLS# 147312 Equal Housing Lender.

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