Appraisals for the purpose of the Lender (Mortgage Company) are to ensure that their lending amounts are in line with the borrowers purchase. Simply put, The amount you are borrowing against a house, is valued in the range you are buying for.
In a Seller's Market, where we had multiple offers, and Buyer's furiously competing with each other, an appraisal was not as critical... in theory the house would /could be worth more tomorrow. Ostensibly by the time you moved in, 90 to 120 days later you may have instant equity.
But in a Buyer's Market, the appraisal is ever so critical. The Appraiser, is taking real estate values from identical sales (historic values) similar homes on streets near your purchase, to compare values. An appraiser is not caught up in the emotion of buying, does not give the same weight to the landscaping and staging, or fresh paint, or how well the house showed. They measure the exterior, consider the general condition and make their recommendations. They may not ever go inside.
Although the Buyer usually pays for the appraisal in their bundle of services they will rarely see the final report as it is commissioned by the lending institution. If they do see the report it usually contains real estate jargon that concludes "Purchase within guide".
Where the Buyer is working with a 20 or 30% downpayment the appraisal is not as critical, but where the buyer is funded with a 5% downpayment, plus the insurance fees, a difference of 5% to the appraised value may result in a request from the Lender to have the Buyer come up with additional downpayment from their own sources. (They effectively, feel you have committed to a strong purchase price.)
An interesting segway from this line of thought is a FSBO transaction, that was declined for financing just days prior to closing. The house appraisal came in, at whatever value but the line of thought was that since it was not on the MLS system, there was no way to establish fair market value as no comparibles could be used. This mystery is within the banks Offer to Finance conditions; that state a number of subject to clauses, IE appraisal, confirmation of Borrowers details, confirmation of down payment source, etc. This FSBO saved by selling himself, and is now in litigation against the bank.
Buyers will continue to buy homes, Sellers will continue to sell, but pricing a home for sale correctly from the onset has never been more critical. After the enthusiasm of the offer and the raw emotion of the purchase the supporting numbers must justify the Bank's investment in your home.
There are deals out there, if you take your time to find that jewel that your family needs. Contact an experienced Realtor to find your Dream Home.
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