Appraisal Reports-What you Need to Know

One of the major components of the home buying process is the appraisal report. Most lenders will not approve a home loan without an appraisal. Under most circumstances everything comes back fine with the report, your loan is approved and before you know it you’re moving into your new home. Sometimes; however, the appraisal report can come back with problems and those problems could cost you the house.

The primary purpose of an appraisal is to determine the market value of the home based on current conditions. An independent appraiser, experienced in such matters, is hired to perform the appraisal. The appraiser must be licensed by the state in which they work. Usually, your real estate agent can make recommendations regarding several experienced appraisers. Be aware, this is one of the closing costs for which you, as the buyer, will be responsible for paying. In order to perform the appraisal, the appraiser will research information on several comparable properties that have recently sold in the area near the home you seek to purchase. He or she will also visit the property in question and perform a physical inspection.

When you receive the final appraisal report it will contain critical information regarding the property. Of course, the bottom line of the appraisal report is the current market value of the house; however, there is also other important information which should be considered as well. In the process of developing the report, the appraisal will determine how much it would actually cost to rebuild the home based on today’s economy in the event it were to be destroyed. Be sure you pay attention to this information because it can help you determine how much insurance you will need for the home. Typically, market value isn’t the same as how much it would cost to rebuild.

The final number the lender will be interested in, of course, is the fair market value and it is that number that can make or break your loan application. The lender will review the appraisal to make sure the home has a fair market value of at least the purchase price. After all, the lender doesn’t want to loan more than the home is worth. If the appraisal comes back with a fair market value of at least as much as the sales price of the home, you’re in good shape. If it is less than the sales price; however, there could be trouble. In the event this happens, you do have some options. One, would be to completely back out of the deal. The lender won’t approve the loan for that amount and so since you are not able to obtain financing you can back out of the deal without losing your earnest money or any experiencing any other negative ramifications. Another option would be to go to the seller and explain the situation. If you’re still willing to buy the house and the seller is willing to drop their asking price to the amount revealed in the appraisal report as the home’s fair market value, you can probably still make the deal work.

 
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