Background:
When you are purchasing a home or condo or when you are refinancing a mortgage, your lender will have an appraisal to determine whether or not the purchase price on your contract or the value you are looking to refinance is substantiated. They basically want to make sure that the house or condo is worth the price you are paying or confirm the value you are hoping for on your refinance. They send out a third party appraiser who will visit the property and prepare a report on value.
Potential Outcomes:
- The best scenario for you is that the appraised value comes in above the purchase price or desired refinance value. That is always optimal as the lender will move forward with the loan approval process or refinance process if this is the case.
- An equally positive result would be for the appraisal to come in at the same value as your purchase price or desired refinance value. This is the most typical result when buying. How it usually works with appraisals on a purchase, is that the appraiser is given the purchase price of the property and then tasked with making sure that the property is worth at least what the purchase price is, so the value of the appraisal often comes in right at that purchase price.
- The concerning result would be if the value comes in under the purchase price or desired refinance value. This scenario can be met with several options.
- If you are a buyer and you have a Financing Contingency in place, there are 3 options:
- the seller and buyer can attempt to get the appraisal adjusted or redone if there is a justifiable reason such as poor comparables used
- the seller can agree to reduce the purchase price to the amount of the appraised value
- the seller can reject the low appraisal in which case the deal either terminates and the earnest money gets refunded to you as the buyer or you can waive your financing contingency and therefore agree to pay the shortfall amount between the purchase price and the appraised value
- If you are a buyer and you didn’t include a Financing Contingency, which is happening more and more in today’s competitive offer environment, you as a buyer can either terminate the deal and lose your earnest money since you aren’t protected with a Financing Contingency, which includes the low appraisal language. Or you can pay the shortfall amount between the purchase price and the appraised value. In other words, increase your down payment to cover the shortfall.
- If you are doing a refinance, you as the owner can challenge the appraised value and if you are our client we are happy to help you thorough this process with your lender.
- If you are a buyer and you have a Financing Contingency in place, there are 3 options:
Tips:
- If you are our client and are planning a refinance and getting an appraisal done on your house, townhome or condo, let us know in advance! We can give you ideas to help you get your home ready for the appraisal!
- Treat your appraiser like a buyer, they are judging your property on how it looks, feels and relates to the market. If that appraiser comes on a day where your place is a mess, cluttered and stacked to the hilt with furniture or belongings or just is dirty and worn looking, this can affect the perceived value. So even if you are getting what seems like a simple easy refinance, don’t hesitate to reach out to us as we can help you prepare your property to get the best value possible. If you are a buyer of ours, we already provide our own comparables and justifications to appraisers on properties our clients are purchasing.