When you need a loan for your new home, the lender chooses an appraiser to evaluate the price of the home. An appraiser considers the neighborhood, the condition, square footage and features of the home in determining the value.
The appraisal is necessary to protect the buyer of the home as well as the lender. In most cases you don't want to pay more for your new home than market value.
And, since the lender is risking capital when they give you the loan, they need to make sure that the home is appropriately priced. Otherwise, the lender could lose their investment.
For example, if the buyer defaults on the payments and the house was overpriced, the lender would need to sell the home. If the home was overpriced when it was purchased, it might not sell for the original price and the lender's equity would be lost, especially if the buyer did not make a substantial down payment.
As the buyer, if your new house does not appraise for the full amount of your offer, you can use the following strategies:
- You can renegotiate the price with the seller. Often the buyer and seller will work out a price between the asking price and the appraisal value.
- You can order another appraisal to get another person's opinion of the home's value.
- You can still purchase the home at the original price. You just need to pay the difference between the purchase price and the amount the lender will loan you.
Here is an example of the way the last option would work: Assume the purchase price is $500,000 and the appraisal is $450,000. If the bank is willing to lend you 80% of the appraised value, you would need to pay $90,000 to cover your 20% PLUS the extra $50,000 over the appraised value. Your total down payment would be $140,000.
If you do not need to borrow money to purchase the home, you can still choose to have a professional appraisal done to make sure that the house is appropriately priced. A buyer may want to do this for a unique property that does not have adequate comparable properties in the neighborhood.
If you have questions about the value of YOUR home - call Cathrynn Frederick at
562-640-0502
