Did you have a bad appraisal?
When you buy or sell a home, and a lender is involved, you’ll likely have an appraisal. But what happens when the appraisal comes back lower than you were hoping for? You might feel frustrated, disappointed, or even angry. But before you get too upset, remember this: an appraisal is just one person's opinion.
So, what exactly is an appraisal, and why is it important? An appraisal is an estimate of the value of a property, performed by a licensed appraiser. The appraiser will take a look at a variety of factors, including the location of the property, its size and condition, and the current state of the real estate market. Based on that information, they will come up with what they call “fair market value” for the property.
So why is this important? When getting a mortgage, the lender will likely require an appraisal to ensure that they're not lending you more than the property is worth.
But again, it's important to remember that an appraisal is just one person's opinion. It's possible that the appraiser got it wrong, made some mistakes, or that there are other factors at play that weren't considered in the appraisal (it wouldn’t be the first, or last time this happened). That's why it's always a good idea to get a second opinion if you're not happy with the initial appraisal. You might be surprised to find that another appraiser comes up with a different value.
So, if an appraisal is just one person's opinion, should this be the determining factor on if you overpaid or underpaid? In short, I’ll say no. The appraiser did their best to determine it’s value but it’s not a perfect science. Just because they don’t think it’s worth that price doesn’t mean the next person won’t either… you could have 5 more people in line who think it’s worth what you’re paying after them.
I always say the appraisal is a helpful (and often necessary) tool, but it’s far from the most important thing when deciding how much the home is worth to you.
What other factors should you be considering when you're buying or selling a property? Location is a big one. A property that's located in a desirable area will typically sell for more than a similar property in a less desirable area. That's because people are willing to pay a premium for convenience, amenities, and a good school district.
The condition of the property is another important factor. A property that's in excellent condition will typically sell for more than a property that needs a lot of work. That's because buyers don't want to spend a lot of money on repairs and renovations right after they've purchased a property.
Finally, market conditions can also have a big impact on the final sale price of a property. If the real estate market is hot, with lots of buyers and not enough inventory, properties will typically sell for more than they would in a cooler market. Conversely, if the market is slow, with more inventory than buyers, properties will typically sell for less.
So, what's the bottom line? An appraisal is an important tool in any real estate transaction, but it's not the only tool. There are other factors at play that can influence the final sale price of a property. Keep an open mind, and don't get too hung up on one person's opinion. Do your own research, talk to experts, and make the best decision for your situation.