Ah, the appraisal. You’ve signed a contract with a seller, you’ve done the home inspection, things are sailing along, and then … whoops. The appraisal on that beautiful new home came in low.
What exactly IS an appraisal? My friend Dan Green, head scribe of the best mortgage site on the planet, writes:
By definition, appraising a home is the act of assigning monetary value to a property; determining its “fair market value”.
For today’s home buyers, a home appraisal helps to determine whether you’re over-paying for a home relative to similar for-sale homes, or getting a “good price”. For refinancing households — save for those using a no-appraisal-needed streamlined refinance — the appraisal helps to determine your mortgage eligibility.
Appraisals are performed by licensed home appraisers and there are several different methods by which an appraiser will assign value to a home. The Sales Comparison approach is the most common.
Via the Sales Comparison appraisal approach, a home appraiser will compare your home to similar homes in the immediate vicinity with similar physical attributes.
Examples of such traits includes number of bedrooms; number of bathrooms; age of home; quality of home finishes; and square footage. Location matters, too, such that similar homes in different school districts may have different appeal and may not be considered “comparable”.
Appraisers will then look at recent sales data of such similar homes, and will assign your property’s value based on available data, and with adjustments made for variances between homes. A home with a finished basement, for example, may be adjusted to a higher value; as might a home with recent renovations.
Homes sold in the most recent 90 days will receive the highest weight in the Sales Comparison approach. Homes sold over 6 months are often given no consideration whatsoever.
Don’t stop there, however – Dan goes on to talk about what happens when the appraisal comes in LOW.
Leslie Frantz, of Hometown Appraisal Services in Blacksburg VA, talks about appraisals as well.
So your appraisal came in low? It’s not the end of the world – you have options.