BANK APPRAISALS

For some years now, banks are known to perform appraisals on properties, they perform appraisals to help determine what loan collateral could be worth if it comes to the worst. In other words, no bank would like to get stuck with a property worth just $100,000 while they lent the borrower over a million dollars for, no home buyer would either want to be found in such case. A buyer might have offered $880,000 for a property while the true worth of that property is just $845,000. The bank gets to the losing side if there is a default on your payments. Appraisals are used by banks to make sure the money they lend is protected.

The use of appraisals is for good and safety reasons like most people would misinterpret it. Bank appraisals can as well make tough times for both buyer and seller when it’s done after a price negotiation have been made and agreed upon and the agreement to buy or sell the property has been made and the contract signed. An appraisal can work at everyone’s interest if the appraisal is close to the agreed upon price by both parties.

How a Bank Appraisal is Done

Appraisals are always done to protect the borrower’s interest and appraisals are most often ordered by the lender. The bank sends in a professional appraiser who is certified and is confirmed to possess knowledge in the local area. it is stated by the federal regulations that, an appraiser should be impartial and have no direct or indirect interest from the transaction. Appraisers are required to confirm that they have experience in appraising similar properties in that area.

The process goes after an offer to purchase a property has been made and agreed upon, this is done before the mortgage is advanced and the buyer claim ownership. The appraiser takes a visit to the property, compare the home to neighboring and recently sold homes in the area. The major role of a bank appraiser is not to determine a suitable market value for a property but to justify how much is offered by the buyer. The chances for an appraisal to come higher or lower than the agreed purchase price are equal. This implies, in case you’re about to purchase a property for much higher than it’s worth, it doesn’t mean you must pay for it, the deal could be canceled or renegotiated after the appraisal is done.

The sales and purchase agreement should always be with the possibility that the appraisal falls below the agreed purchase price so you can be given the chance to renegotiate or terminate the contract. If not you could be on the losing side and will be required to cover the differences for a low appraisal which could cost extra thousands.

Reasons for Bank Appraisals

Banks need to know the amount of money they’re giving you and they need to verify that the home value is worth more than what you are borrowing in order to guarantee a money recovery unless the home has a significant drop in value.

  • A guaranteed loan: When you are provided with a mortgage loan, the property is used as the collateral for the loan. If you fail to repay the loan, the property can be reclaimed the lender, sell it and pay off your debt. The property gives the bank an assurance of a money back loan. Most people see foreclosure as an impossibility and say it will never happen to them, you need to agree in your loan contract.
  • Unbiased information: Banks or lenders have to time to visit neighborhoods where properties are located so they can look at houses and they don’t possess knowledge of your local area. The bank lending you money might be thousands of miles away and they’ll never get to see the condition of your home in person. How can they be confident about the information they get? They hire an appraiser with intimate knowledge of your local real estate market with no emotional or financial benefits in the deal.

Common Issues in Bank Appraisals

There are numerous challenges faced by a homeowner when selling a home of which one and most important is successfully getting through the bank appraisal process on their homes.

The first thing you need to know is that a bank appraisal is not a home inspection. Most home buyers will get a home inspection done when buying a home and for personal and good reasons. A home inspection as compared to the bank appraisal is a very detailed inspection of the property. Though the bank appraisal is not as detailed as the home inspection, there every possibility that issues might arise during the bank appraisal.

There are some bank appraisal issues faced by real estate home sellers which the most common and well-known is “repairs”. The bank appraiser cites repairs that need to be done on the home. The bank appraiser looks for certain deficiencies in the home, not thoroughly inspecting the home. It’s best to understand the various types of financing a buyer can possibly get and the different requirements needed for each type. For example; an FHA appraisal or a VA loan appraisal are applied with some strict guidelines than the conventional appraisal. Depending on the type of financing the buyer is using can determine whether the bank appraiser is allowed to cite repairs or not.

Some issues with a bank appraisal can be avoided if proper steps are taken and working with an experienced sellers agent could bring a great change as they will point out some repairs that could be pointed by the appraiser and they will know the perfect value for your home to avoid low bank appraisals.

Low Bank Appraisals

Your loan needs to be justified by an appraisal which implies you need an appraisal to be high enough in order to be qualified for the loan. In most cases, the appraisal value must match the agreed upon price between the buyer and seller. The lenders need to be convinced that your home has more than enough value to get their money back. If home’s appraised values come lower than your agreed price, your loan will be declined and you will be left with other options.

  • Get another appraisal done: Getting another appraisal done while hopping for a higher estimate might be a solution but never expect an appraiser to help approve the loan.

  • Get a different lending arrangement: Applying for a new lending arrangement with smaller loan value might be of help.

  • Get a higher down payment: This will help make the difference and keep your loan at an acceptable loan-to-value ratio.

High Appraisals

If a property is appraised higher than the agreed purchase value, there is no problem with it. There can only be a problem if you’re the seller and you’re asking for much lower than the appraised value. Any additional value will be added to your home’s equity. Most often, appraisal normally gets very close to the agreed purchase price.

How to Stay Safe from Low Bank Appraisal

Like we all know, there always a way out from any problem. There are a few things that need to be done to stay safe from low bank appraisals.

  • Get your realtor to educate the appraiser: Your realtor should have more knowledge concerning the property and the conditions of the transactions. Your realtor can take an active role to educate the appraiser and leading him/her to comparable sales in the area. Your realtor might be able to create an influence on the appraiser’s final opinion.

  • Create a financing condition: By creating a financing condition, you can insist your lender performs the appraisal as requested by your conditions and within the conditional period. No one would like to discover the week before ownership that the bank appraiser has a different value for your home than your offered price and now you need to come up with more money. It’s best to know your options when there is still time for further arrangement.

  • Don’t overpay for the home: Bank appraisers look at comparable prices in the area which is same as you did with your realtor. All you need to do is be sure the worth of the property and that it matches with recent sales in the neighborhood. Paying the right price won’t give the appraiser much work which will save time for you both

  • Create a backup plan: Creating a backup plan is having a contingency fund, there is every reason you need additional cash when buying a real estate property, you’ll always find unexpected reasons to spend. If the bank appraiser underestimates the property’s worth by just $5,000, your extra funds can help here by funding the differences.

Challenging a low appraisal

A low appraisal is considered a nightmare for both the buyer and seller, a low appraisal can sometimes lead to the end of the transaction as it shows the worth of your home not meeting up to the sale price. No lender or bank would approve a mortgage for more than the worth of a home. But if you strongly believe the appraisal was wrong and your home is worth more than the appraisal value, there are ways to get out of the condition. I will list some four smart moves to challenge the appraisal result and get a second chance to prevent some common appraisal mistakes.

  • Give the appraiser reasons to change opinion: To get the appraiser looking from your point of view, you need to get him/her more data, provide something different from the one they used. Get a copy of the appraisal, read it and see if you can afford the most influential item. Compare the home to neighboring homes that have recently been sold. Adjust your price to compensate for the differences.

  • Point missing comparisons: Check out the comps used by your appraiser, he/she might not know much about the recently sold homes in your neighborhood. The appraiser can sometimes find comps listed in multiple listing sites. If a home was sold without being listed and its similar to your home and was sold for more than what the appraiser says your home is worth, get the bank and the appraiser look at the information. Foreclosures or short sales can be hard for the appraiser to find.

  • List some new upgrades on your home: The appraiser might not see the new features in your home. Point out things like a new fireplace, new kitchen redone, additional bedrooms, new furnace, updated roof and new central air conditioning. Give the appraiser reasons your home is worth more.

How to Bypass a Bank Appraisal

There is always a possibility to bypass every obstacle. If you’re faced with any trouble completing your home purchase due to the impact of bank appraisal or other problems by the lender, try considering a Land Contract. Land contracts were known to be common during the 70s and 80s when mortgage interest rates were high and disappeared during the days of easy credit in the last decade. I’ll give some explanations why you should consider a Land Contract to best bypass your appraisal process.

  • No lender involved: The first and most important advantage of a land contract is that it is an agreement between the buyer and seller and no third party involved like a bank or a lender. This process is known to be effective as sales are completed faster because there are just two parties involved in the agreement. No need for a lender’s approval or satisfy its demands like appraisal, credit check or down payment. A land contract is gaining more firm in the current housing market as it is the solution to what has been a problem for several potential buyers. Getting an appraisal that matches with your agreed upon price is a well-known problem.

  • Seller-backed financing: A land contract serves as seller-backed financing. The buyer pays in installment to the seller instead of making a regular mortgage payment to a bank. The seller keeps every legal document of the property until all sales and payment contract has been completed. Land contract has been used by people with little money to get a down payment so they can as well boast of homeownership. A land contract is mostly structured with payment duration of five or more years assuming that the buyer must have been able to refinance to a regular mortgage and buyer can claim all deeds to the property.

Disadvantages of a Land Contract

Though the land contract might sound so well, it comes with significant downsides and the service of an attorney will be most important. In most cases, land contracts will be violating the terms of mortgage which means the bank might demand immediate payment if it discovers the arrangement. This is why getting the service of an attorney will be most helpful.

What does it cost to get a bank appraisal done?

There is always an appraisal fee covering the cost of having a skilled appraiser evaluate and estimate the perfect value for your home. Most often, the cost ranges from $300 to $500 and some time prices vary depending on the specific property. Some features used to determine appraisal fee include house sizes and remote locations which highly affect the appraiser cost. Some big banks or lenders would like to hire their appraisal as they will handle the cost of an appraisal fee.

Choosing an Appraiser

In most cases, lenders prefer to choose their appraiser for a perfect job and the appraisal fee will depend on who is hired by the lender. Some appraisers were reported to increase home values to help in the approval of loans before the mortgage crisis. Real estate agents and mortgage brokers might have reasons for choosing appraisers who brought their required answers, not really the right answers. From then, appraisers are known to be much independent and are not willing to help anyone get a deal done. Whether you’re buying or selling, you are given the chance to hire your own appraiser but your appraiser won’t be used during the loan approval.

So far as most home buyers will require a mortgage to complete a real estate home purchase, the bank appraisal process is a part that cannot be avoided and needs to be well understood. It is best to know that a bank appraisal helps in protecting a large investment made by the bank. It might seem ridiculous if your blame an appraiser for under appraising your home or citing repairs.