If A House Is Appraised Higher Than The Purchase Price
You're in a good situation if this happens. It simply means that you've agreed to pay the seller less than the home's market value. Your mortgage amount doesn't change because the selling price won't increase to meet the appraisal value.
If that appraisal turns out higher than expected, you might increase the asking price to reflect its purported value. Keep in mind, however, that an unexpectedly high appraisal value could be mistaken. You might want to get a second appraisal done to confirm your home's true value before increasing the sales price.
A higher appraisal can improve your loan-to-value ratio, which may lead to better loan terms, such as lower interest rates or reduced private mortgage insurance (PMI) requirements.
The appraiser's primary role is to determine the fair market value of the property based on objective factors such as its condition, location, comparable sales, and market trends. The appraised opinion of value may be the same or very close to the contract price however, it may also be considerably higher or lower.
Most appraisals come in at the right price. According to a report by Corporate Settlement Solutions (CSS), only about 8% of properties sold in the first half of 2024 sold for more than their appraised values.
There's often an addendum that allows buyers to back out without losing their earnest money deposit if the appraisal doesn't match the offer price. If the sellers stand firm and don't want to budge on price, the deal might fall through, sending the buyers back on their search for the perfect home.
The home appraises for less than the sale price.
Often, a low appraisal can also cause issues with financing, as banks aren't willing to provide a loan if the home isn't worth enough to serve as collateral. That means a low appraisal could give the buyer pause and the seller a chance to cancel the sale.
Appraisers consider "curb appeal," or how a property looks overall on approach in comparison to other homes in the area, when valuing a home. Calculations for lot size and views factor in as well, but having useable, clean and attractive land adds to the appraisal value and appeal of the house to buyers.
The seller often does not generally get a copy of the appraisal, but they can request one. The CRES Risk Management legal advice team noted that an appraisal is material to a transaction and like a property inspection report for a purchase, it needs to be provided to the seller, whether or not the sale closes.
While getting an appraisal is a necessary part of the home buying process, sometimes pre-listing appraisals may hurt the seller rather than help.
The appraisal to closing timeline may vary, but it generally takes two to five weeks to close after completing the home appraisal. How fast can you close on a house? While closing on your new house sooner than the average 43 days is possible, it requires a streamlined closing process.
In a sellers market, it's not uncommon for homes to sell above their listing price or even their appraised value.
If the buyer can't come up with more cash and the seller won't lower the price, the buyer may have no choice but to back out of the sale. If the purchase agreement doesn't contain an appraisal contingency, the buyer will lose their earnest money deposit and possibly even face legal action.
In some cases, however, home appraisals are inaccurate and contain errors—such as the wrong square footage or school district—which can change the valuation. Around 8% of home appraisals are lower than the contract price, according to Fannie Mae, which can impact the loan approval process and a successful home sale.
The standard, professional answer is, of course: “No, it won't affect value. Appraisers are trained to look at the structure and layout of the house, and overlook the sinkful of dirty dishes. Don't worry.”
High Appraisal
An appraisal that comes in high for a homeowner preparing to refinance can increase a homeowner's equity, which could boost their cash-out refinance proceeds or remove their private mortgage insurance (PMI) obligations on a conventional loan.
Appraisers do look in closets to determine the total square footage of the property. This doesn't mean every single inch of your house has to be in tip-top shape for the appraisal, but the interior of the home should be clean and free of clutter, and this includes closets, under sinks, and in the attic.
While it's always great for the property appraisal to come back higher than the amount you agreed to buy it for, this is no way affects the loan amount you need to qualify for, or the down payment you need to close on the mortgage loan. Both conventional and unconventional mortgage products offer similar requirements.
3.9% of real estate sales fail after the contract is signed.
There's nothing more frustrating than having a buyer back out at the last second. Even if you're lucky and the house sells quickly and above the asking price after a heated bidding war, many things can go wrong that cause a deal to fall through.
In most cases, it's still going to be the buyer. “The buyer is usually required to pay the appraisal fee upfront, and it is owed even if the lender does not move forward with a loan,” says Lee Dworshak, a real estate agent with Keller Williams LA Harbor Realty in Rancho Palos Verdes, CA.
Consumers have the option of filing a complaint regarding their appraisal or evaluation directly with their lender, or through the lender's federal regulator. Visit HelpWithMyBank.gov for more information about how to contact your lender's regulator and how to file an appraisal complaint.
Generally, the appraisal report doesn't change the fact that you and the buyer already have a contract to sell the property at a certain price point. Just because the appraisal shows the seller may have underpriced their property, they don't have the right to walk away from the deal.
Yahoo Finance tip: Your purchase contract must include an appraisal contingency, which states you can back out if the appraised amount is too low. Otherwise, you will forfeit the earnest money you put into the deal if you walk.