What’s an Appraisal?
What’s an appraisal and why do I need one? That’s a question we get all the time. In the simplest form an appraisal is an examination of the property. During the escrow process your lender will obtain the purchase contract from the buyer’s agent. The lender will then submit a request to get an appraisal done. The appraiser works for an independent company that the bank contracts with. The purpose of the appraisal is for the bank to make sure it’s not over-lending on the property. To put in simplest terms– the bank doesn’t want to make sure you–the buyer–is over paying for the home you are under contract for.
Typically, the buyer pays for the appraisal. That cost could be as little as $450 dollars. The fee, is non-refundable, unless your agent or lender says they will credit you if there are any challenges.
Speaking of challenges.. The biggest thing that can happen to an appraisal is that it comes in too low. Less than contract price. It doesn’t happen too often — however– it does happen. That’s why it’s important for your agent to pull comparable properties to the one you are buying an make sure that the offer your writing is competitive but isn’t over priced.
What happens if the appraisal comes in too low? Well, there are several options… first.. and you have to check your contract…. in California you have the right as a buyer to cancel the agreement. That’s because the contract says the property must appraise at contract price. You must make sure, however, that it was not negotiated out of the contract. If it was… and sometimes that happens… you may be required to move forward with the purchase.
Secondly, you can share the difference with the seller. Say the appraisal comes in $10,000 lower. The seller could reduce the purchase price by $5,000 and you could bring in an extra $5,000 to close the deal.
Lastly, you could ask the seller to just reduce the entire difference to the appraised price. That doesn’t happen very often but it does happen. One time, I got a $29,000 price reduction that way.
If you’re looking to buy a home in San Diego give us a call at 619-818-2992.
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