WHAT IS AN APPRAISAL AND WHAT HAPPENS IF IT COMES IN LOW?

EVERYTHING YOU NEED TO KNOW ABOUT THE APPRAISAL PROCESS...



If you're purchasing a home and getting financing from a bank or a lending institution, an appraisal is something that will be mandatory (mostly) in order to get financed. What does this mean for a buyer? I explain:

WHAT IS AN APPRAISAL AND WHY DO I NEED ONE?

An appraisal by definition is the act of assessing something. In the context of Real Estate, if you're getting financing, an appraisal will be ordered by the bank or lending institution to "assess" the home, to ensure what they're funding is a good deal. 

Rightfully so they do this - the reason is if you're putting 20% down and the bank is putting 80% down, they're going to want to do some research on their end to ensure they're not getting into something bad. 

The appraiser goes to the home, assesses the home, and sticks a value to what the bank should fund on it. Once the bank receives the "appraised value," then that number is what the bank is going to lend on. 

WHAT HAPPENS IF THE APPRAISAL IS LOW?

Especially in Seattle, this is ALWAYS a common concern. Due to the amount of bidding wars and tough competition, we almost always come up with this as a point of conversation.

Let's say that you're buying a home for $500,000, but the appraiser goes out and says that the appraised value is only $490,000.  There's a $10,000 gap from what the bank is willing to lend you and what you're purchasing it for. Well there are three things you can do:

1. If you REALLY think the appraised value is off, then you can work with your lending team to get it re-appraised. It may cost you an additional fee AND it may delay your closing since it'll need to be re-ordered.

2. You can make up the $10,000 in the form of cash. At the end of the day, you'll still be paying the $500,000, just putting more towards a down payment. 

3. You can work closely with your agent to see if you can adjust your loan to adapt to the new downpayment/appraised value. 

4. You can negotiate with the selling agent to see if the seller is willing to go down in purchase price. In a hot market though, this could be hard.

It always works itself out, so don't fret if you come across this. Just work closely with your lending team and realtor. 

HOW DO YOU AVOID LOW APPRAISALS?

So, how do you avoid having to fork up additional cash in a hot market?

What I like to do is always meet the appraiser at the property at the time they're appraising it. If I'm representing the buyers, then I likely know most of the comparable homes in the area AND have seen them in person. I arrive with these comparable properties in hand and if there are properties pending, then I make sure to get in touch with the agent to see if I can do a little fact finding. If i'm representing the seller - same thing, I've likely seen most of the comparable homes in the neighborhood FIRST HAND and can speak to why our property should be appraised at the purchase price. I can speak to specific features, how many offers we received (if multiple), the amount of interest, people through open house, etc. 

I do all that I can to avoid a low appraisal hiccup and fight for my buyers and sellers to ensure a smooth transaction. 

In conclusion, if you come across a low appraisal, don't fret - it'll always work itself out. Work closely with your agent and lender to ensure everything goes smooth.



Are you thinking about starting your home buying journey? Reach out, we can help you. 


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