Home appraisals can be stressful for buyers and sellers alike, especially when an appraisal comes back higher or lower than expected. Learn how to be prepared for unexpected appraisal results.
Home values have been steadily increasing across Arkansas and the rest of the country for the last few years, making now a great time to consider selling. However, selling a home can be quite complex and involves more than simply listing your home and closing on a sale. The appraisal is one of the most important aspects of a home sale; it estimates the value of your home, and is a requirement among most mortgage lenders today. As a seller, you should always be prepared for the possibility that your appraisal will come in either higher or lower than the agreed-upon sale price of your home.
Understanding the Home Appraisal Process
Typically, a home appraisal is done after you’ve accepted an offer on your home, but before closing. The timing of an appraisal often coincides with that of a home inspection. Specifically, an appraisal is used to determine the current value of your home based on factors such as its condition, a land survey, and local property values.
For a mortgage company to lend out the money that your prospective buyer needs to finance their purchase, the home appraisal needs to come back at the agreed-upon sale price or higher. This is because lenders prefer not to finance a home for more than its value.
Your Home Appraisal Comes in Low
The worst-case scenario for any seller is when an appraisal comes in too low. Possible explanations for a low appraisal include a recent drop in neighborhood home values, lack of comparable real estate in the area, or even mistakes made by the appraiser.
If an appraisal is lower than expected, the first thing you should do as a seller is to get in touch with the buyer’s agent and see if they are willing to pay the agreed-upon price, despite being higher than the appraised value. If the buyer is unwilling, you may need to reduce your asking price.
Another possibility is to appeal your appraisal, especially if you believe any mistakes were made that affected your appraisal value.
Your Home Appraisal Comes in High
While less common, you should also be prepared for the possibility of your appraisal coming in higher than expected. This could occur if home values in your area recently increased, or if you made any last-minute renovations or upgrades after agreeing on a sale price with your prospective buyer.
The problem with this is that once you have agreed on your sale price with the buyer and earnest money has been placed, you cannot retroactively try to increase your sale price. Still, you may consider trying to negotiate other terms with the buyer, such as asking them to pay a greater portion of closing costs. Generally, an appraisal that comes in higher than the agreed-upon sale price is a great situation for the buyer to be in, but not so much for the seller.
The best way to ensure a fair and accurate appraisal is to understand the process and prepare adequately. This means doing your research, learning how the process works, and finding a reputable appraisal company.