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How to Understand and Navigate the Appraisal Process

RS384_iStock_000004004971XSmallThe appraisal process for a new mortgage can be confusing to both Triangle area home buyers and home sellers. The purpose of an appraisal isn’t to determine the true value of the home, but, to instead help the bank determine if they should grant the loan for the total asking amount. This is for the bank’s protection because it limits their exposure to a foreclosure.

Fact is there’s a percentage of mortgages that’ll end in foreclosure. Appraisals combined with the buyer’s credit/employment history help the bank make a sound business decision about how to mitigate risk on the funds loaned. Keep in mind that the bank has to agree with the appraiser and an appraiser may simply err on the conservative side for this reason.

To help your chances, make your home as presentable as possible during the staging process to help leave a lasting positive impression. Also understand that location and size are two strong factors in the appraisal process.

The Appraisal Isn’t Actually Your Home Value

When the bank orders the appraisal they’ll notify the appraiser of the purchase price which allows them to begin finding suitable comps to justify that number.

The appraiser also takes on risk as the bank can hold them liable in a foreclosure for over-appreciation. For this reason, most appraisers are simply looking to justify the purchase price and not necessarily provide a true home value.

No Two Are the Same

Not all loans are created equal. Some are more forgiving with things like debt to income ratios yet more stringent during the appraisal. Also, Refinances and Equity Lines of Credit tend to have higher appraisals because the bank knows your mortgage history. Familiarity tends to ease anxiety.

Knowledge Is Power!

Despite the myth, it’s allowed for appraisers and listing agents to speak. I’ve found that on my listings the appraiser always calls me when they’re having difficulty. Perhaps it’s because I’m a strong brand with a reputation of selling a lot of homes or maybe I’ve been lucky. Regardless, this has saved my sellers a ton of money over the years and for that I am grateful.

Many times the appraiser skips this important step. This is where it gets hard, but, you can still take the following steps to protect yourself:

  1. Challenge the appraisal. If the appraiser bypassed the listing agent, simply ask the lender if you can challenge it. Many times they’ll allow new comps to be submitted or will even allow a new appraisal. This depends upon the lender, loan type, and where you are in the process.
  2. Get a copy. Before sending comps, ask to see a copy of the appraisal. This may or may not be released. It’s 50/50, but, it really helps when you can see the report. If they won’t release the appraisal for review, ask for the square footage page or the breakdown of square feet that’s on it.
  3. Make sure everything is listed. The appraiser may have missed a full bath or something that would add the value you need.
  4. Review the comps carefully. Look for discrepancies that would help add value to the property.
  5. Find superior comps. Be ready to defend them as well. Be careful how you approach this because you don’t want an ego flare between the appraiser and the listing agent.
  6. See if the appraiser used any under-contract comps. If not, ask the lender what their rule is on this. Many lenders allow the use of under-contract properties in the appraisal if the market is appreciating at a higher rate.
  7. Request another appraiser. If the current appraiser will not alter their value to give you the sales price you need then as ask the lender if they’ll allow another appraiser. This cost will have to be worked out as to who pays for the second one, but, it’s usually worth the investment.
  8. Change lenders. When the seller isn’t willing to reduce the price to the appraised value and they buyer isn’t willing or can’t pay above appraised value, the last resort is to change lenders and hope for a new result. My experience has proven that often starting over elsewhere is the only solution.

We’re Here to Fight For You

During the appraisal challenge process it’s usually the listing agent fighting the battle, which means anyone thinking of selling a home would fare better having a Realtor with experience on their side.

Experience and persuasion that comes from confidence and a brand reputation for market knowledge is a powerful thing for a seller to have working for them. The buyer agent is perfectly happy with the seller lowering their price and so is the buyer. A large part of the listing agent’s job is to defend every penny of equity for their seller client.

Whether you’re still searching for your home or you’re a seller looking to list your property, Linda Craft & Team is here to partner with you to reach your goals. Contact us today. You’ll be glad you did.

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