elitere | Apr. 6, 2023
When it comes to buying or refinancing a home, real estate appraisals are a critical step in the process. Appraisals are an assessment of a property’s value based on various factors, including the property’s location, size, condition, and comparable sales in the area. Lenders require appraisals to ensure that the property they are financing is worth the amount of money they are lending to the borrower. But why exactly are appraisals required, and what happens if the appraised value doesn’t match the sale price?
Why Appraisals are Required by Lenders
Appraisals are a way for lenders to protect their investment by ensuring that the property they are financing is worth the amount of money they are lending to the borrower. Lenders require appraisals to determine the fair market value of a property and to make sure that the property is not overpriced.
The appraisal process typically involves a viewing of the property by an appraiser, an analysis of the property’s features, and a comparison of the property to similar homes in the area that have recently sold. The appraiser will then provide a report that includes an estimated value of the property.
If the appraised value of the property is lower than the sale price, the lender may require the buyer to make a larger down payment to make up the difference.
What Happens if the Appraised Value Doesn’t Match the Sale Price?
If the appraised value of the property is less than the sale price, it can create challenges for both the buyer and the seller. The lender may refuse to finance the full amount of the sale price, which means the buyer may need to come up with additional funds to make up the difference. If the buyer is unable or unwilling or unable to do so, the sale may fall through.
It is important to note that if the appraised value does not accurately reflect the property’s value, you can discuss this with your lender. They may be willing to order a second appraisal or consider the comparables your agent has found. It is also possible to contest an appraisal by providing additional information or evidence that supports your argument.
Real estate appraisals play a crucial role in the home buying and financing process. While they may seem like an additional step in the process, they are a necessary one for a successful and secure real estate transaction.