The Importance of Home Appraisals
Whether you’re an aspiring homebuyer or a homeowner looking to refinance, getting a home appraisal can be a nerve-wracking process. A lower-than-expected appraisal can significantly impact your ability to secure the mortgage you need. Understanding the appraisal process, why appraisals sometimes come back low, and what to do if you find yourself in this situation is crucial.
What Is a Home Appraisal?
A home appraisal is a professional estimate of your home’s value. Appraisals are vital in the home-buying process as they ensure you don’t overpay for a property and protect lenders from lending more than the home is worth. For mortgage refinances, appraisals provide updated information on your home’s value, which helps determine how much equity you can access.
Types of Appraisals
There are two major types of appraisals: purchase appraisals and refinancing appraisals.
- Purchase Appraisals: Required when buying a home with a mortgage, these appraisals ensure that the purchase price aligns with the market value.
- Refinancing Appraisals: Similar to purchase appraisals, but conducted when a homeowner refinances. Homeowners can attend the appraisal to provide additional context or documentation.
How Are Appraisals Conducted?
The most common appraisal method compares your home to similar homes recently sold in your area. Appraisers gather data on these homes’ features, sales prices, and other relevant details to estimate your property’s value. Alternative methods include assessing the replacement cost or considering rental market rates for similar properties.
Dealing with a Low Appraisal
A low appraisal can derail your mortgage plans. Here are some strategies to handle this situation:
- Walk Away: If your purchase contract includes a Condition of Financing clause, you may be able to exit the deal if the appraisal is too low and you can’t secure financing.
- Renegotiate: Ask the seller to lower the selling price to match the appraisal. Sellers motivated to avoid relisting might agree to this adjustment.
- Increase Your Down Payment: Compensate for the lower appraisal by increasing your down payment, reducing the loan amount required.
- Request an Appraisal Rebuttal: If you believe the appraisal is unfair, request a re-examination and provide additional information that might have been overlooked. A mortgage broker can assist with this process.
Improving Your Appraisal Outcome
Here are some tips to enhance your chances of a favorable appraisal:
- For Sellers and Homeowners:
- Document and present all upgrades and renovations to the appraiser.
- Share data on multiple offers received.
- Ensure the home is clean and well-presented; consider home-staging techniques.
- For Buyers:
- Evaluate whether the asking price aligns with appraisal factors like floor plan, curb appeal, and home condition.
- Research the surrounding neighborhood, including crime rates and infrastructure.
Navigating the complexities of home appraisals can be challenging, but understanding the process and knowing how to respond to a low appraisal can help you make informed decisions. Whether you’re buying or refinancing, working with a knowledgeable mortgage broker, such as those at MortgageSquad, can provide valuable guidance and support. If your appraisal comes back lower than expected, our brokers can help you explore your options and find the best solution for your needs.
