Buying a home is filled with new terms, layers, and a lot of paperwork. Through the mix of everything, it is easy to get confused, and it is entirely acceptable to ask questions to an experienced agent to help you understand the process and what each step looks like. One step of the process, in particular, has a lot of misunderstandings and myths around it, and whether you’re a seller or a buyer, the appraisal can be one of the most stressful parts of the home selling and buying process!
Myth 1: An Appraisal is the same thing as the inspection
Even though both of these processes will provide knowledge and safeguards to the buyer, they are two very different items. Your inspector’s job is to go through your home and examine everything they can see. HVAC systems, crawl spaces, appliances, floors, walls, plumbing, etc. Their job is to report to the buyer everything that is wrong or maybe a potential problem in the future that they should be aware of. The appraiser, however, will be looking at the home to figure out the objective market value of the home. The appraiser will use homes that have recently sold near the subject property closely related to the home. They also will take a look into the condition, location, and square footage. They will also make notes of plumbing, flooring, and electrical systems; however, this is not the same way an inspector will.
Myth 2: The appraiser works for the buyer
Although the buyer pays for the appraiser, the appraiser works directly for a lender to do the job at the end of the day. Buyers pay for the appraisal process, but their job is to make sure that the bank isn’t loaning more money than a home is worth and protect the lender from a bad deal. Appraisers must also work ethically and have an unbiased decision on the property’s value.
Myth 3: An appraisal will always match what the lender will loan to the buyer.
This is probably one of the more dangerous myths regarding appraisals. The appraisal process isn’t an exact science and takes into many factors; however, some cases come up where the appraisal is either higher or lower than the purchase price. So what happens in this case? If the appraisal comes back and is higher than the purchase price, the buyer wins instant equity in the home. If the appraisal comes back lower, however, a few situations can happen, and it is all dependent on your contract. Remember, the lender will not lend you more than the home is worth; however, they can look at other ways to make the difference. Say the home appraised for $290,000, but the purchase price was $300,000. You planned on putting 20% down or $60,000. The lender may provide the option to put $50,000 down instead to make up the difference in the appraisal gap. The buyer, in many cases, can also renegotiate the price with the seller to see if the seller is willing to meet them a little closer to the appraised price.
Myth 4: The more included, the higher the value
You just did a major remodel on the kitchen and the bathrooms; you spent over $100,000 on new appliances, countertops, shower re-tiling, and all the bells and whistles to make your home luxurious in your neighborhood. This potentially could impact absolutely nothing in regards to the appraisal. Remembering an old phrase: “It is better to have the worst house on the best street than having the best house on the worst street.” When it comes to the appraisal, all your neighbors and their 1990 appliances and original everything directly impacts your home.
Myth 5: Amenities are all equal.
You put in a beautiful new swimming pool and an in-law suite for your mom. You are excited to see what the appraiser thinks of all the hard work you have done to the home. However, that in-law suite was once a garage that had been converted. Appraisers seeing your home with a garage door that has been covered to build a new in-law suite will not see this as a benefit, and buyers may not either. People like protecting their cars from the elements, especially in Florida, where there are no basements, enjoy the additional space provided with a functional garage.
If you have questions about any of these myths or what to expect in the home selling process, give our team a call!