You are likely to encounter a home appraisal contingency regardless of whether you are planning to sell your home or purchase one first.
Given the importance of the home appraisal process, you should be aware of what to expect in advance.
A professional appraiser performs a home appraisal in order to determine the value of the property.
The appraised value is not always the same as the actual listing price. To determine a property’s appraised value, the appraiser will compile a report detailing everything they find, good and bad.
Factors appraisers consider
- Interior and exterior condition
- Exterior additions, such as outbuildings, swimming pools, additional landscaping, etc.
- Square footage
- Number of bedrooms and bathrooms
- Check the heating and cooling systems, fireplaces, or a high-end kitchen ventilation system.
- Verify that permanent fixtures work as well as appliances
Why appraisals matter
Lenders typically loan a maximum of the appraised value or the purchase price, whichever is less.
It is recommended that, if you intend to put down 10%, you should be prepared to put down $50,000 if the home appraises for $500,000.
Alternatively, if the appraisal is $450,000, the lender will provide the loan based on the $450,000 appraisal.
Essentially, since the value has been lower than the purchase price, the lender will only be willing to loan $405,000, which is 90% of the appraised value.
As a result, the buyer will be required to put down a greater amount of money in order to secure the loan.
Moreover, lenders are required to maintain a loan-to-value ratio, which means that their appraised value is the actual value of your home, determining the amount of the loan.
In the event that they determine the property you would like to purchase has a lower price than your stated offer, they will decrease your loan amount accordingly.
Conduct a competitive analysis
Consider reviewing similarly priced homes in the area if you’re considering selling your property, as another home may have features that will add value to your property.
Small, relatively cheap improvements, such as painting or replacing an old floor, can make a significant difference in your home’s value.
Furthermore, it is important to ensure that not only the interior but also the entire yard and property are clean and presentable, as you want to make the best possible impression.