The appraising of a home serves as a step in the home buying or selling process that relies on an external factor: the expert opinion of a stranger. Banks use these experts to determine how much value a property has, thus determining how much the bank would be willing to lend a buyer. This part of the mortgage process is an important one. If the seller is asking $450,000 but the appraiser values the property at $375,000, then the home is well overpriced and the bank will be unwilling to loan the full asking price. A bank doesn’t want to be stuck with a property that is valued less than what is invested, so the appraisal not only protects the buyer, but the bank as well.
Each lending entity usually provides a list of properly certified and licensed appraisers whom the lender primarily works with. This pool of approved appraisers ensures consistent results and turnaround but the cost is up to the borrower – which is usually tacked onto the mortgage. Appraisers have two different approaches when evaluating a property: the sales comparison approach or cost approach.
The comparison approach compares other homes in the neighborhood (that have recently sold) to the house in question. Adjustments are made for lot size, square footage and other specific components and features.
The cost approach is generally used for new properties and is based on reproduction cost. The baseline here is what the cost would be to build an identical home in case the house was destroyed. This cost is factored in with land value and depreciation to determine the overall worth.
In a final appraisal report, the following information is generally included:
• a description of how the appraiser determined the value of the property
• a description of the house and its features and what improvements have been made
• any notes about structural problems, issues with basement leaking or foundation
• notes about the surrounding neighborhood (area)
• comparative market analysis to support any appraisal summations
• photographs or maps that feature pertinent aspects of the property
So what do you do if an appraisal is lower than the asking price of the home? There may be several remedies to fix what seems like a lowball appraisal. Certain factors such as needed repairs or maintenance can affect the final attached value so if these corrections can be made a second appraisal can be requested. If, however, the appraisal doesn’t seem like an accurate representation of the value of the property, or the appraiser is unwilling to compromise or listen to your concerns, you can go to your state’s licensing agency and file a complaint. If none of these options are suitable, perhaps the seller can lower the asking price of the home, or as a last answer the buyer can account for the different in appraisal and asking price by putting down a larger down payment.