Shedding light on common real estate terms and definitions.
Today’s topic is near and dear to me. As with most things real estate, I’ve come to learn, you don’t know squat until it happens to you. Up to this point in my career I hadn’t had a single issue come up as a result of an appraisal. Call me lucky, I reckon. That all changed one fateful (last) Thursday when I get a text from the buyer’s agent saying a crack in my seller’s concrete porch is a “health and safety hazard” and the bank won’t approve the loan until it’s repaired or replaced. Not a huge deal, right? Well, when closing is ten days away and most contractors are booked up for the next several months – things get sticky. So, without further ado, I’m going to answer the all-important question: What the heck is an appraisal?
Two sides of every story
In every real estate transaction there are two sides at play: the seller’s asking price and the actual value of the property. This where the appraiser steps in. The bank doesn’t want to lend you X amount for a house if it’s more than the property is actually worth. They’ve got to protect their investment. This can get a little touchy when the seller thinks “I know what the comps say, but my house is SO SPECIAL.” More often than not, this is the most important part of the appraisal process – determining the true value of the home.
What does the appraiser do?
- Conduct a room by room walkthrough to assess the condition of the interior.
- Conduct a walk around the property to assess the condition of the exterior.
- Appraise the value of amenities, like a pool or built-in bar.
- Make note of any potential health or safety code issues.
- Verify square footage and design a layout of the property.
Behind the scenes he/she will use one of a few different methods, likely using similar properties that have sold recently, to determine market value for the home in question.
Where did they come from?
The appraiser is most-commonly hired by the lender – they’re the ones protecting their investment, remember? The buyer ends up paying for this at closing, though this can vary from state to state and even deal to deal.
What’s the end game?
After completing their report, the appraisal is sent to the lender as well as the buyer. If all is well and the value comes back at or above what the bank is lending – everyone is happy! If the value comes in far below the offer price that can lead to a whole other set of issues involving price reductions, appraisal gap waivers, a whole boatload of cash being required at closing, and other creative solutions that we’ll get in to another day. And, like I’m dealing with as I type this, if any health and safety issues are flagged – someone’s got to remedy them before closing can occur. Wish me luck!
I hope I’ve sufficiently answered the question I just know was keeping you up at night: What the heck is an appraisal? If you’d like to learn more about what to expect when your appraisal is completed (or anything else, for that matter) – please give me a holler. I’ll be back soon with some more info, insights, and random opinions that absolutely no one asked for 🙂
