Skip To Content
  • Home
  • For Buyers
  • Navigating the Appraisal Process in Real Estate Transactions

Navigating the Appraisal Process in Real Estate Transactions

By Chip Collins

In the desirable Lowcountry of South Carolina, the real estate market is experiencing a shift back to normalcy after the pandemic-induced frenzy of cash purchases. As lenders become more involved in transactions, appraisals are once again a critical aspect of home buying. Understanding appraisals, their impact on market value, and the steps to take if an appraisal comes in under the contract price can be crucial for both buyers and sellers.

Appraisals serve as the bank’s method of validating a property’s value, ensuring it aligns with the market. This process is essential for securing a mortgage. When a contract includes a financing contingency, the lender evaluates both the property’s value and the borrower’s ability to repay the loan. The loan decision is based on the lower of either the appraised value or the contract price.

In today’s market, appraisals are increasingly becoming a focal point in the contract process. A typical financing period might span 30 days, during which appraisers assess the property using comparable sales data and current market trends. Their goal is to validate the agreed purchase price for the lender.

Appraisers consider the broader market conditions when evaluating a property. They analyze whether prices are appreciating, stabilizing, or declining. If an appraiser perceives that the agreed purchase price is too high compared to market conditions, it can pose challenges. An appraisal lower than the contract value can trigger a series of steps and negotiations that you should strategize with your real estate agent well before the appraisal even takes place.

For instance, if a property is under contract for $500,000 but appraises for $485,000, and the buyer is seeking an 80% loan-to-value mortgage, the discrepancy must be addressed. The first step involves reviewing the appraisal for accuracy. Common areas to scrutinize include the accuracy of property measurements, bed and bath counts, and the inclusion of all relevant comparable sales.

If the appraisal is accurate but lower than the contract price, the parties must navigate the resulting financial gap. Buyers might need to make up the difference in cash, or they could attempt to renegotiate the sale price with the seller. Contract language can also be tailored to protect both parties. For example, including a clause that obligates the buyer to cover any shortfall in cash can prevent disputes.

Additionally, providing the appraiser with pertinent information upfront can mitigate issues. For example, if a property has had significant upgrades or if a comparable sale was influenced by unique circumstances, sharing these details can help the appraiser make a more informed evaluation.

Effective communication between agents, buyers, sellers, and appraisers is key. While it’s illegal to influence an appraiser, providing factual information that could assist the appraiser is not only legal but also advisable. For instance, noting recent renovations or explaining the context of comparable sales can aid the appraiser’s assessment.

Ultimately, understanding the appraisal process and preparing for potential discrepancies can smooth the path to closing a real estate transaction. In a market where appraisals play a pivotal role, being informed and proactive can make all the difference in achieving a successful sale.

Trackback from your site.

Leave a Reply