A home appraisal is a critical step in the home-buying process, providing an independent assessment of the property’s market value. Lenders require appraisals to ensure that the home’s value justifies the loan amount. Reviewing the appraisal carefully helps you confirm that the purchase price reflects the property’s true worth and protects you from overpaying.
Why Reviewing the Appraisal is Important
The appraisal ensures that:
- The Home is Fairly Valued: An accurate appraisal prevents you from overpaying.
- Loan Approval Proceeds Smoothly: Lenders use the appraisal to determine how much they are willing to finance.
- Renegotiation Opportunities Arise: If the appraisal comes in lower than the purchase price, you can negotiate a lower price or request the seller to make up the difference.
How to Review the Appraisal
1. Examine Key Sections of the Appraisal Report
- Property Details: Verify that the description of the home, including square footage, number of bedrooms and bathrooms, and lot size, is correct.
- Comparable Sales (Comps): Check the properties used for comparison. Ensure they are similar in size, condition, and location.
- Adjustments: Appraisers make adjustments based on differences between the subject property and the comps. Review these adjustments for fairness and accuracy.
- Final Appraised Value: Compare the final value with the agreed purchase price.
2. Understand Factors That Influence the Appraisal
- Market Conditions: Recent trends in the local real estate market can affect the appraisal value.
- Condition of the Home: Renovations, upgrades, or deferred maintenance influence the home’s worth.
- Location: Proximity to schools, amenities, and public transportation impacts value.
3. Address a Low Appraisal
If the appraisal comes in lower than expected:
- Renegotiate with the Seller: Request a price reduction to align with the appraised value.
- Challenge the Appraisal: Provide additional comps or evidence to dispute inaccuracies.
- Increase the Down Payment: Cover the difference between the loan amount and the purchase price.
- Walk Away: If an agreement can’t be reached, use the appraisal contingency to exit the contract without penalty.
Tips for Buyers
- Request a Copy of the Appraisal Report: Ensure you receive and thoroughly review the full report.
- Ask Questions: Clarify any discrepancies or unfamiliar terms with your real estate agent or lender.
- Monitor Market Trends: Stay informed about neighborhood values to better understand appraisal outcomes.
Conclusion
Reviewing the home appraisal is essential to ensuring that the property’s value aligns with the purchase price. By carefully examining the report and addressing discrepancies, you protect your investment and ensure a smoother path to homeownership. Taking the time to understand the appraisal process helps you make informed decisions and avoid costly financial surprises.