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Q & A: Appraisals


You've been pre-approved by your bank and have found a great home within your budget--but before your mortgage will clear, the bank will require an appraisal to be done.

This begs the question: What does 'Appraised Value' mean?


Q: What is 'Appraised Value' ?

A: Appraised Value and a home's Sales Price are not necessarily the same. A seller may price their home above market value in hopes of getting the best deal for their property. The appraised value of a home is determined by a professional appraiser who largely uses comparable properties in the area along with current market trends and conditions. Lenders look at the appraised value of a home to decide whether allowing you to finance the full sales price is a responsible decision. Banks will be cautious and determine their loan amount by the lower of either the sales price or the appraised value.

Q: Why is an appraisal necessary?

A: You may be wondering why a bank would require an appraisal if your home of interest is within your pre-approval amount. In short, lenders want to be sure that their investment can be recouped in the event of foreclosure or a natural disaster. Appraisals also reassure you as the buyer that you are not overpaying for your home. A low appraisal can even be used as a bargaining tool to bring the sales price down.

Q: How do appraisals work?

A: First, an appraiser will be selected by your bank to determine the home's assessed value based on comparable properties in the area and/or the amount it would cost to rebuild the home in the event it were destroyed. The appraiser will assess the home and comps and create a report containing the following:

  • An explanation of how they arrived at their valuation
  • The size and condition of the house/property and any improvements that have been made
  • Notes about the surrounding area including any new developments, commercial growth etc.
  • An evaluation of recent market trends that may affect the home's value
  • A comparative market analysis to support the appraisal
  • Maps, photographs and/or sketches of the home

Q: What do I do if the appraised value is lower than the sales price?

A: An appraisal that comes in lower than the contractual sales price is a red flag that the property is overpriced. The first thing to do is determine why the appraised value came in short-maybe there are things the homeowner can repair or fix to improve the assessed value. If that is the case, you can certainly request a second appraisal once the necessary repairs are completed. However, when an appraisal comes in low the mortgage transaction will be at a standstill until one of the following happens:

  • Repairs are found, corrected and a new appraisal affirms the home's value
  • You are willing to make up the difference between the sales price and appraised value in cash outside of the mortgage
  • You and the seller will re-negotiate the contract to fall within the appraised value

If none of these options pan out, the contract will likely have to be cancelled.


The Signature Properties Team is always here to advise you if you have questions or concerns about any real estate matters! We are pleased to be your resource!

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