Property appraisal - Its importance and solutions to a low appraisal

A real estate appraisal is important when you finance a mortgage loan to purchase a property. It helps to determine the market value of the property you're planning to purchase. Your lender may require a property appraisal to ensure the value of the property is worth the amount they are extending to you on the loan.

Residential appraisal report – Its importance

If you finance the purchase of a home, the final commitment usually depends upon a residential real estate appraisal. This is because the bank wants to make sure that their invested amount is covered in case you default on payment.

Value of the property – If the appraised value is less than the sale price, the lender may not approve a mortgage loan for the purchase of the property. There are options that may occur such as: the buyer may choose to pay the difference between the appraisal and the sales price; the seller may agree to reduce the sales price to the appraised value; or the contract may be terminated. Always check with your REALTOR® or attorney for guidance on your options.

Entry to the property – If the appraisal report states that the entry to the property is from a private shared road, then the lender may want to verify whether or not the road maintenance agreement is signed by everyone who uses the road; that is, whether or not the maintenance is shared by all of them.

Time taken to sell the property – The lender may hesitate to offer the mortgage loan if the estimated time to sell the property is comparatively more than the area average.

Cash Buyers:

Often times, cash buyers feel the need for an appraisal is an unnecessary expense, especially since a bank is not involved. It is never a bad idea to have a property appraised, especially if it is an investment and the market is volatile.

Resolutions to low appraisal values:

Call the appraiser and ask him/her what they used for comparables.

Provide comparables you used to price the subject property.

Provided a list of upgrades and features that may have been overlooked.

Explain why you believe the value should be greater that the appraised value.

If this fails, call the lender and ask for an appraisal by a different appraiser, if you feel the first appraiser truly was not responsive.

Renegotiate the sales price to the appraised value, if you are the buyer, or pay the difference between the appraised value and the sales price; or terminate the contract.

Renegotiate the sales price to the appraised value, if you are the seller.

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