The scenario: A house is listed at $ 450,000. But it’s a hot sellers’ market, stocks are low, and properties are recovering almost as soon as the “For Sale” signs pop up. You, the buyer, get into a bidding war and come out victorious (whoo-hoo!). However, you are now paying $ 475,000 for the place, which is $ 25,000 more than the list price. Is the house Actually worth that much?
Enter an appraiser, whose job it is to determine the fair market value of the home, regardless of the seller’s list price and the buyer’s intuition of the home’s value. The appraisal process involves an on-site inspection and a thorough review of comparables, or “comps,” which show the recent sale price of similar homes in the area.
“In a fast-paced market like the one we are experiencing today, it is more important than ever to be aware of the valuation process,” says Julie busby, a Chicago broker with Compass. “In short, banks hire appraisers to tell them that the value of a property is what the buyer is willing to pay.
In other words, the lender wants to make sure that the loan they are giving you is justified by the value of the house. So, if you stop paying, he could get back the value of the property.
An appraisal can also help protect homebuyers, according to Holden Lewis, a housing and mortgage expert with Nerdwalletbecause the Chartered Appraiser may find issues that were not brought to your attention when you visited the home. An example: let’s say you buy a house a few blocks from a junkyard and the wind was blowing away from the junkyard as you walked through the house. An appraiser familiar with the area would know that this occasional stench lowers the value of neighborhood properties and could factor it into the appraisal, says Lewis.
It should be noted that although the lender selects an appraiser to assess the value of the home, the actual appraisal fees are those that buyers cover as part of the closing costs. The average home appraisal is typically $ 300 to $ 400, according to Lewis, but it can start at $ 600 in some metropolitan areas and can exceed $ 1,000 for more complex properties.
A sticking point in the current market is the fact that house prices are rising rapidly in some neighborhoods, and appraisers might not take this fully into account, Lewis says.
So what if the appraisal is less than what you were willing to pay for the house? One way to avoid this problem in the first place is to avoid bidding well above the asking price or checking recent sales in the area to make sure your bid price is in line, says Caroline McCarthy, vice -President of Own, a mortgage market site.
Your real estate agent, the captain of your home buying team, can help you navigate this scenario, which could involve canceling the transaction or challenging the appraisal. One option is to renegotiate with the seller, Lewis says. Another option is for the buyer to come to the closing table with enough money to bridge the gap between appraised value and contract price, Busby says. Or, in some cases, the buyer and seller may meet in the middle.
Of course, houses can also assess for Following than the selling price. In this case, you have “instant equity” says Nicole wilhelm, a real estate agent in the San Francisco Bay Area. However, don’t worry too much about this step of the process: “More often than not, homes will be valued based on the purchase price,” says Wilhelm.
Ready for the next step ? here are the the biggest cities with the most expensive homes.
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