After an offer to purchase a home from a buyer is accepted by a seller, the buyer’s bank or mortgage broker will order an appraisal? An appraisal is an estimate of a home’s value by an independent evaluator (called an appraiser). The estimated value of a home is related to the recent sales price of similar properties in the same area, as well as the condition of the property being evaluated. An appraisal is usually requested soon after the purchase agreement is signed by the buyer and seller, and is usually completed 7-10 days later.
The appraiser will prepare a written report that details the estimated value of the home, as well as the method used to determine the value. The estimated value of a home made by the appraiser could be less than the agreed upon price between the buyer and seller, equal to the agreed price, or above the agreed price.
If the estimated value of the home made by the appraiser is equal to or above the agreed upon sale price, then the loan process can continue. If the estimated value of the home is less than the agreed upon price, then the likelihood of the buyer’s loan getting approved diminishes. Most banks will be reluctant to approve a loan on a home for which an independent appraiser has estimated a lower value. However, one exception to this is if the buyer has the funds, and is willing to pay cash to make up the difference between the agreed upon sales price and the estimated value. Otherwise, the seller will either have to agree to reduce the sales price to equal the appraised value, or the buyer may have to cancel the purchase contract and look for another house.
For example, let’s say that a buyer has agreed to purchase a home for $300,000 using a no down payment Veterans Administration (VA) loan. However, an independent appraiser estimates the home’s value at $280,000. In this case, the buyer’s bank will only loan $280,000, and not the $300,000 agreed to by the buyer and seller. The only options in this scenario is that seller either has to reduce the purchase price $280,000, or the buyer has to make up the difference in cash ($20,000), or the buyer has to cancel the purchase contract and look for another house.
Your Realtor can be an excellent source of advice regarding the estimated value of a home. In fact, before a buyer makes an offer on a home, their Realtor should advise them about the estimated market value of the home.
