Lenders require an appraisal on the house before they’ll provide a loan because the property is the collateral for the loan. The lender will choose a certified appraiser to evaluate your home and you’ll pay the appraiser’s fee, typically $300 or $750 depending on the square footage of the property and the purpose of the appraisal Appraisals on investment properties tend to be a higher fee because the appraisal typically includes a rent cost analysis as well. The appraisal is based on information gathered from most recent sales in the surrounding area and includes a comparative market analysis, which reports the specifics of your house such as square feet, number of bedrooms, number of bathrooms, the location and age of the property and interior improvements.
If the appraisal comes in lower than the sales price, you and the seller will need to abide by the contract. If your contract is contingent on an appraisal, and is completed within the finance contingency, (see finance contingency) then you have several options in the event of a low appraised value:
1. You can withdraw the offer and have the earnest money deposit returned.
2. The seller could reduce the sales price and renegotiate the terms.
3. You could pay the difference in cash which means you will pay more than the home is worth. This is not a very popular option but I do see it happen in certain circumstances.
If the value comes in higher, then you will know you are getting a good deal. Unless you are using a renovation mortgage, you will not be able to borrow against the higher value for at least one year.
NOTE: It is VERY important you pay attention to the dates of the sales contract. If the appraisal is not conducted within the time frame set within the sales contract, then you could lose your earnest money, even if the house does not appraise. It is wise to be very vigilant with both your lender and real estate agent to set realistic time frames and adhere to those time frames within the sales contract.
If the appraisal comes in lower than the sales price, you and the seller will need to abide by the contract. If your contract is contingent on an appraisal, and is completed within the finance contingency, (see finance contingency) then you have several options in the event of a low appraised value:
1. You can withdraw the offer and have the earnest money deposit returned.
2. The seller could reduce the sales price and renegotiate the terms.
3. You could pay the difference in cash which means you will pay more than the home is worth. This is not a very popular option but I do see it happen in certain circumstances.
If the value comes in higher, then you will know you are getting a good deal. Unless you are using a renovation mortgage, you will not be able to borrow against the higher value for at least one year.
NOTE: It is VERY important you pay attention to the dates of the sales contract. If the appraisal is not conducted within the time frame set within the sales contract, then you could lose your earnest money, even if the house does not appraise. It is wise to be very vigilant with both your lender and real estate agent to set realistic time frames and adhere to those time frames within the sales contract.