Hometown Lawrence: Real estate appraisals provide valuable information
The thought probably crosses every home buyer’s mind: Are we paying too much for this house?
It may be the home of your dreams, but if the cost is more than it’s worth, it could become a nightmare when securing the loan or when you try to sell it in the future.
This is where an appraisal comes into play. Residential appraisers, typically employed by lenders, estimate the value of real estate involved in a loan transaction. A home appraiser provides a professional opinion on the estimated market value. This is different from the county appraisal done to determine property taxes.
Appraisers in Kansas are licensed through the Kansas Real Estate Appraisal Board. Most lenders use an Appraisal Management Company (AMC), also regulated by the state, to obtain one since the Appraisal Independence Requirements do not allow a commissioned loan officer to choose the appraiser or speak to one concerning the value of the property.
An appraiser makes the assessment in two ways. First is with an on-site review of the property, where the home’s age, square footage, style, construction quality, location, and condition are noted, as well as the size of the entire property and special amenities, such as decks, fireplaces, swimming pools, and security systems. After the on-site review, the appraiser will determine the actual value of the property, typically by comparing the past sales of similar properties.
“A real estate agent will help the seller look at comparable sales in the area to come up with a list price,” Chris Earl from Stephens Real Estate said. “Hopefully, the appraiser is looking at the same information.”
What happens if the appraisal comes in low? Understandably, a lender would be reluctant to provide money for a house with a sale price higher than the appraised price. However, there are ways to handle a low appraisal:
Challenge the appraisal: The real estate agent can provide additional informational and facts to support the sale price. Two examples Earl pointed out are if multiple offers were made on the house, or if the market overall for homes is competitive. He said, “In a competitive market, what buyers are willing to pay doesn’t always match the appraisal value.”
Get a second appraisal: This is a good move if the first appraiser was from outside the area and possibly not familiar with the specifics of the home’s location.
Negotiate a new price: See if the seller is willing to come down in their asking price.
Pay the difference: If the seller doesn’t want to negotiate, the buyer can pay the difference in cash to meet the agreed-upon price.
Cancel the contract: Most sale contracts have an appraisal contingency clause or a loan contingency clause that allows the buyer or the seller to cancel the deal.
Earl noted a low appraisal doesn’t mean the deal is off. He said, “There are usually ways to work through it.”
Hometown Lawrence is the Lawrence Journal-World’s real estate resource section and website. For more information on area real estate listings, go to HometownLawrence.com.