You’ve been through the ups and downs of looking at numerous properties. You’ve maybe written more than one offer. Perhaps you’ve lost out on several properties due to this explosive Flagstaff real estate market. Well, that’s only the partial battle. Once you’re in escrow and have waded through the inspection period, the next hurdle will be the appraisal.
By definition, appraisal is explained as “an expert estimate of the value of something.” This is not only a requirement of a lender if you are obtaining a loan on a property, it is overall a very good idea. When a buyer and seller come together, you have to have one main element to a contract: meeting of the minds, simply explained, is buyer and seller agreeing on a price. While this still holds very true, that meeting of the minds should be justified by a totally objective third party.
The lender you have chosen works with a variety of trained, qualified appraiser professionals. The appraisers are assigned randomly to certain lending files. When an appraiser has been assigned to a file, he or she will contact the listing agent and/or office of the property in order to gain access to the property. All parties of the transaction have the right to be present for this process; however, it is usually best to steer clear and let the professional do his or her job.
Appraising is a scientific process in which the appraiser will take into consideration the following: age of the home, square footage of the home, condition, renovation details, permanent fixtures, structural defects, etc. Your real estate professional can also assist in this process by giving the appraiser information regarding the specifics of the contract. Were there multiple offers? The appraiser will also look at comparables in the immediate area. What have similar homes sold for in the past couple of months?
Usually, the cost of the appraisal is considered a buyer expense; however, like most things in real estate, that is negotiable! Prices for appraisals vary, but your typical three-bedroom/two-bathroom, 1,600-square-foot home will likely cost between $400-$500. Your lender will guide you through the process as to when the appraisal should be ordered and will call on you for payment.
What happens when the appraisal comes in at or above contract price? Yay! Good news all around. The home appraised and you take the next step toward closing on your home.
Sometimes we aren’t so fortunate. Appraisals can come in lower than the contract price. We are seeing a bit of this happening right now. This is common in a rising market. The prices tend to rise a bit fast, buyers are getting into bidding wars and more often than not, homes are going into escrow for more than the asking price.
What happens when this is the case? A variety of things are possible. For one, neither the buyer or seller are obligated to the appraisal price. There is an appraisal contingency that is part of the AAR purchase contract that states the parties have five days to agree on the next course of action. A lower appraisal price simply means the lender will only lend on that amount. Could the buyer bring the difference in cash to the table to close? Yes. Could the seller reduce the purchase price of the home to meet the appraised price? Yes. Are either party obligated to do so? No. Could the contract be cancelled? Yes. Will the seller deal with this same situation with the next buyer? Likely. A myriad of options. Again, another reason to have your trusted real estate professional guiding you through the process. FBN
By Sherri Monteith