How Do Home Appraisals Work?
Reader Question: Do bank appraisers make an actual value appraisal, or do they appraise the home for slightly over the amount of your loan?
A good appraiser will always appraise a home for its true market value, which can be equal to, above or even below the asking and/or contract price. During the housing boom of just a few years ago, home appraisals were coming in all over the place due to the rapidly changing home values. Sellers were asking top dollar and many lenders were using appraisers who were willing to squeeze out just enough value to help the lender and its buyer finance the purchase.
Even so, many home appraisers were diligent about not inflating home values, which is in the best interest of the buyer. For example, when we purchased our home in the middle of the housing boom, our appraisal came in at $1,500 below the seller's asking price, which is what we offered in our purchase agreement. The lender would not finance any amount over the appraised value so we had three choices: 1) come up with the $1,500 out-of-pocket; 2) ask the sellers to lower their asking price; or 3) back out of the offer and move on.
We chose the second option and asked the sellers to lower the asking price, based on the home appraisal figure. Since we were already so far into the sales transaction, the seller happily obliged. Had we chosen option #1, we would have paid more for the home than it was worth, which -- as we have seen in current market conditions -- is not always a smart choice.
I hope this answers your question about home appraisals and appraisers. Good luck!
Related articles:
Evaluating the Seller's Asking Price
Steps to Buying a Home
A good appraiser will always appraise a home for its true market value, which can be equal to, above or even below the asking and/or contract price. During the housing boom of just a few years ago, home appraisals were coming in all over the place due to the rapidly changing home values. Sellers were asking top dollar and many lenders were using appraisers who were willing to squeeze out just enough value to help the lender and its buyer finance the purchase.
Even so, many home appraisers were diligent about not inflating home values, which is in the best interest of the buyer. For example, when we purchased our home in the middle of the housing boom, our appraisal came in at $1,500 below the seller's asking price, which is what we offered in our purchase agreement. The lender would not finance any amount over the appraised value so we had three choices: 1) come up with the $1,500 out-of-pocket; 2) ask the sellers to lower their asking price; or 3) back out of the offer and move on.
We chose the second option and asked the sellers to lower the asking price, based on the home appraisal figure. Since we were already so far into the sales transaction, the seller happily obliged. Had we chosen option #1, we would have paid more for the home than it was worth, which -- as we have seen in current market conditions -- is not always a smart choice.
I hope this answers your question about home appraisals and appraisers. Good luck!
Related articles:
Evaluating the Seller's Asking Price
Steps to Buying a Home
Labels: Home buying process
posted by Brandon at
12:34 PM
