Real Estate Appraisals Are 
For Lenders, Not Buyers and Sellers

real estate appraisals

Real Estate Appraisals are a necessary step in the home-buying process. So, it should be no surprise that they are a common denominator in most real estate transactions. Still, there needs to be more clarity about them, as Buyers, Sellers, Investors, and even Realtors sometimes think of them as home inspections.

Here's a quick look at what you need to know 'about them!

What Happens if The Appraisal is Lower Than The Offer

Here's a misguided belief. Sellers often think that a low appraisal for their home is the kiss of death, but that's not necessarily the case. Why? Because buyers and sellers can deal with low appraisal estimates in several ways.

So, the more you learn about real estate appraisals beforehand, the better prepared you'll be to head off problems before they occur.

Can You Talk To The Appraiser?

Yes, you can, but refrain from talking about the property's value to avoid trying to influence their assessment. Instead, as a seller or seller agent, I made it a point to be on the premises to the extent possible whenever appraisals for my real estate transactions were done to assess better how I could improve the value of the properties.

For example, there were times when I was preparing a "fixer-upper" for sale, hadn't made improvements yet, but wanted to know the property value subject to them being completed.

So, I'd walk through the properties with the appraisers and point out what I would do to improve the properties to get maximum value before closing. Sometimes the appraisals would come back with two valuations. One for the in "as is" condition and another "subject to completion of the improvements."

But for the conversation with the appraisers, they would not have known about the improvements I was planning to make, and I wouldn't have known what the property would be worth subject to those improvements.

Since only some people can pay for a house with all cash, lenders will require an appraisal. A loan will only go through with an appraisal valuation, whose purpose is to establish the home's market value, which may or may not be the same as the sales price.

The Main Goal of the Appraisal is to Protect the Lender

Lenders want to avoid lending money on property not worth its price tag. Consequently, they require the completion of appraisals before they approve loans.

The information contained in Real Estate Appraisals is invaluable to the lender. The lender will study the details of the appraisal before reaching a final decision.

Also, lenders frequently dictate the choice of an appraiser. It might have one in-house or through a contract. Other times they have a short list of appraisers that they'll accept. If you go with your own choice for an appraiser, they may be subject to final approval from the lender.

Appraisers Typically Use Either the Sales Comparison or Cost Approach

The sales comparison approach is when an appraiser compares the property to similar properties sold in the area and bases the market value on the comparables or comps.

On the other hand, the cost approach reflects the costs to build a home and is, therefore, more appropriate for new properties.

The actual appraisal contains information about the subject property and comparisons of similar properties. There is an evaluation of the overall housing market within the area. The appraiser will then list any issues that might diminish the property's value.

Another component is a list of problems like bad roofs or weak foundations. The appraiser then gives an estimate of the sales time for the house. Finally, the report will indicate the type of property.

A real estate appraisal is not the same thing as an inspection

While an appraiser might report problems they see, they are not responsible for declaring whether the appraised home is in good condition. They are only responsible for assessing the property and determining the market value for the lender. A home inspection is a different process altogether.

Real estate appraisals only include the home, the land, and improvements to the same, but not personal property like appliances, heating, or air-conditioning systems. The buyers should purchase those items separately.

Everyone fears the possibility of a low appraisal. It happens all of the time, usually during closing. There are things you can do to remedy this common but stressful situation.

  1. The buyer can make a larger down payment. 

  2. If this is not feasible, the seller and buyer can negotiate the price some more.

  3. Additionally, either or both parties can always dispute an appraisal.

What all goes into an appraisal? A lot. Appraisers look at

  • the condition and size of the house
  • its proximity to good schools and
  • the size of the lot

Appraisers do not look at dirty dishes or overflowing laundry baskets. They don't care about chipped paint, broken windows, and appliances that don't work.

Real estate appraisers are trained professionals licensed by the state where they work. They are qualified for their work by completing state certification requirements like exams and continuing education courses.

The work demands strong critical thinking skills and the ability to interact with different groups of people. Consequently, just no one off the street conducts Real Estate Appraisals.

7 Home Appraisal Tips Video

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Next: 5 Mistakes First Time Homebuyers Make

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