Buying or Selling a Home? Should You be Concerned About Appraisal?

So you're buying or selling a home in Northern Virginia. Should you be worried about the property not appraising?   Possibly, if the home sells for asking price, or the price was driven up due to multiple offers.

Does a home being bought or sold always need to be appraised?  Yes, if there is any type of loan involved.  If the purchase is a cash transaction then an appraisal is not necessary, but still might be a contingency of the buyer.

There are two common appraisal methods used for residential properties: The cost approach is most useful for new properties, where the costs to build are known.  The appraiser estimates how much it would cost to replace the structure if it were destroyed.  The sales comparison approach is most common,  involves the appraiser estimating the subject property and coming up with an appraised value based on comparable.

Appraisers make notations about obvious problems they see, but they are not home inspectors.  They do not test appliances, look at the roof, check the chimney or do any other typical home inspection tasks.  Never count on an appraisal to help you determine if the home is in good condition.  If you know an appraiser is coming to your home, it's in your best interest to tidy up.

So here's how it works. Finally you've decided on a home and put a full price offer on it and it was accepted.  Great!  Congratulations , you have a ratified contract!  Now You have to immediately start the loan process, and the lender  arranges for their appraiser to come out to evaluate the property.  Hold onto your hats folks because if the home doesn’t appraise for the sales price agreed upon by the parties,  the lender will not approve the loan amount.  What happens at this point?  Let me give an example.

Jane and John want to purchase your town home in Fairfax County.  You've priced the home at $400,000 even though nothing has sold for more than $375,000 in your neighborhood for years.  Not only do you get one awesome offer, you get three and the price has been elevated to $425,000.  You ratify the highest and best offer and are overjoyed.  Not so fast.  Will the home appraise?  If the home appraiser cannot find comps to substantiate that sales price, there might be an issue.  Either you'll have to lower the sales price to the appraised value or the buyer will have to agree to come to the closing table with extra cash to cover the portion of the sales price not covered by the loan amount.

The last three of my homes sales in Fairfax County did not appraise for the agreed-upon sales price.  The reason  is this….the market has turned around very quickly and the comparables are just not there to support the elevated prices.  Even if buyers are willing and able to pay more, and the market is dictating a higher sales price, the appraisers often can't find the necessary comps.  I have had to learn very quickly that this is something I need to discuss at length with my buyers and sellers before an offer is accepted and ratified.

So, you're purchasing or selling a home in Northern Virginia this year?  Do you need to be concerned about appraisal issues?  Yeah….possibly you do.  Make sure you're working with a Realtor who knows what to do to avoid a conflict due to inspection items and appraisal issues.  of course, feel free to contact me with any of your questions about this or other Real Estate related issues.  Good luck!

Ellen Moyer, RE/MAX Allegiance Realtor    www.ellenmoyer.com    ellen.moyer@rmxtalk.com