Home appraisal tips – and what is home appraisal based on

Whether you’re selling or purchasing a home, you’re likely to encounter a home appraisal contingency at some point. While there’s no doubt the process can be nerve wracking, knowing what to expect from a home appraisal can put those nerves at ease.

We’re here to break down the what, why and how of home appraisals and share some tips to help your home come out on top.

First things first, what IS a home appraisal?

Great question! A home appraisal is the process by which a licensed appraiser conducts a thorough inspection of a property to assess its true worth (which isn’t always the same as the listing price). The appraiser will then compile all of their findings into a report and generate the home’s appraised value.

If a buyer is financing their purchase with a loan, the lender will typically handle ordering the appraisal. This is done to insure that the lender is not over-lending or lending more money than the property is worth. As such, some lenders may actually require buyers to include an appraisal contingency in their offers.

Why should you care about home appraisals as a buyer?

Lenders generally base the amount of money they loan you on the appraised value of a property, not the listing price. If you are financing your purchase with a loan, your lender might require an appraisal contingency to insure that your loan doesn’t exceed the value of the property. In these instances, the lender will typically handle coordinating the appraisal.

If the home you’ve made an offer on is appraised at an amount lower than your offer price, you have a few options:

1. Make up the difference in price.As mentioned before, lenders use the appraised value of a home to determine your loan amount. If the property is appraised at a lower value, your lender will decrease your loan amount.If you want to proceed with the purchase, you’ll need to increase your down payment to cover the difference between your new loan amount and the agreed upon price.
2. Renegotiate the price with the seller.If you really want the home, but do not want the increased financial responsibility associated with a lower appraisal value, you can always ask the seller to agree to a lower purchase price. This can be a long shot in a competitive market where sellers receive multiple offers and bidding wars are common.
3. Back out of the deal if you have an appraisal contingency.If the seller is unwilling to renegotiate the purchase price and you don’t want to pay the difference out of pocket, an appraisal contingency allows you to cancel the…