When you decided to purchase a home in the D.C. area, you also decided (most probably) to take a mortgage loan. This means you have to deal with a bank, credit union, or some other sort of lender. They agree to lend you a certain amount of money to purchase a certain property.
The collateral for the loan, should you fail to keep your side of the bargain by making timely payments, is the property itself. That is why, before you can have the money, the lender wants to see if the property is worth (at least) the amount you are borrowing. This is where the appraiser comes in. An appraiser is typically chosen by the lender, and paid by the buyer. The lender is obliged to give the buyer a copy of the appraisal at least three days before the closing of the sale.
Various factors go into the appraisal. Naturally, size, in square footage is important. The number of bedrooms and baths is also pertinent. If there are improvements made, and the property is well kept, that helps get a higher appraisal. The property will be compared with other properties with similar features. Location, location, location! If the home is in proximity of good schools, shopping, and public transportation, that’s a plus.
Here’s the rub. There seems to be a trend at present for the homeowner to assess the value of the property above the amount assessed by professional appraisers. Nationally, the average homeowner thinks the property is worth 1.77% more than the appraiser. That can throw a chink into the process of obtaining a loan. If you, the buyer, agree to pay a certain amount, and the appraiser tells the bank it’s not worth that much, what can you do?
First and foremost, any agreement you make should be contingent on the appraisal and the approval of the loan. Some buyers waive this contingency because of the shortage of good houses for sale, and the competition in bidding. If the deal is set, there are other options.
The lender you choose is a factor. Some of the local lenders use a panel of appraisers (chosen by the lender), and they are given assignments on a rotating basis. Most of the larger lenders and credit unions use appraisal management firms who are the middleman, and they in turn assign appraisers on a random basis. Because appraisal management firm take a cut, the appraiser gets less for their work. Many veteran appraisers opt out of this system and choose to work on local mortgage lenders who pay them their normal fee. Sometime an appraiser from outside the market area may participate in working the appraisal management firm. If the appraiser doesn’t know the local market, that could create problems.
The realtors job is to work with the appraiser to provide comparable data and upgrades for the appraiser to know about, thus helping educate them on why the home might be worth a certain value.
Appraisers are not infallible. If, after going over the appraisal with your real estate agent, you both agree that the owner’s price is the right price, you could challenge the appraisal, providing documentation from your agent. If that isn’t an option, you could increase your down payment to cover the difference. There’s also the possibility of renegotiating the price of the sale. If that doesn’t help, maybe the seller would be willing to finance the gap between the selling price and the amount of the appraisal.
The Casey O’Neal team is ready to help and advise you through the whole process of buying or selling a home. Let us know if you would like a list of appraisers or lenders for your situation.