A home appraisal value directly impacts the mortgage process.
We’re going to review what a home appraisal value is and how you can calculate a home appraisal.
We’re also going to distinguish an appraisal value and a market value and how an appraisal value can affect buyers.
Finally, we’ll share what you can do in the event an appraisal value is lower than your offer price.
What is appraised value?
An appraised value is determined by an assessment done by an official appraiser to get an estimate of the value of the home you’d like to buy.
The appraisal value is determined by multiple factors:
- County & municipal records on the home
- Size of the home
- Recent listings and sales of homes in the surrounding area
- Listings and sales of homes in competing areas
- How old the home is
- An internal & external inspection of the home
- Location of the home
- Any unique characteristics of the home
In a nutshell, an appraisal value is an official report provided to your lender that contains an assessment of the home, the effective date of value, and how much the home is valued.
How do you calculate appraisal value?
It’s possible to determine a home’s appraisal value on your own. You can get a rough estimate of an appraisal value in a couple of ways.
There are tools available, such as the Federal Housing Financing Agency Price Calculator, which can determine how a home purchased at a certain point in time would have appreciated today.
This is so long as the home you’re looking to purchase has appreciated the same that other nearby homes have.
While this is a great starting point, you should also consider researching other home values in the nearby area to get a better understanding of what they’re going for.
The amount you will see will be the market value instead of the home’s appraisal value, but it’s another great reference point as you’re trying to determine the appraisal value and what you can expect for your mortgage.
Is appraisal value the same as fair market value?
An appraisal home value is not the same as a fair market value. A market value is the estimated price value of a property.
Essentially, it’s how much a buyer would be willing to pay for a home.
Homeowners can hire a real estate agent to provide an official Comparative Market Analysis (CMA), to see how much the home would be valued for.
The best way to explain the market value for a home is if a seller lists their home for $250,000, but a potential buyer is only able to pay $175,000. They then may negotiate somewhere in the middle, and voila—you have your market value.
However, if it’s a competitive market, then the seller may not have to settle for a lower price. They may receive an offer above the listing price and therefore have a higher market value.Check your mortgage options
How does a low appraisal affect buyers?
As we’ve discussed, an appraisal value directly impacts your potential mortgage. You want the appraisal value to be as close to the agreed-upon price of the home as possible, or higher.
A low appraisal can present challenges in the mortgage process and as you journey through the home-buying process.
During the underwriting process of obtaining a mortgage, underwriters will use the appraised value of the home to provide an assessment of the loan-to-value (LTV).
An LTV is used to determine how much of the home’s value the lender will have to finance.
If an appraisal comes back lower then you have options.
You can negotiate with the seller to reduce the price or pay more on your down payment. In turn, you wouldn’t need to borrow as much.
You can also put more down for a down payment; if you’re able to put more down you’re also reducing how much you’re borrowing and you’d get more in home equity as a result.
If the appraised value is lower than expected and you don’t have the financing to cover the extra costs of the home, then you can ask for an appraisal rebuttal.
An appraisal rebuttal is when the buyer submits a formal request for the appraiser to re-assess the home’s appraisal value.
What causes an appraisal gap?
Sometimes a lower appraisal is largely dependent on the housing market, and whether it’s a buyer’s or seller’s market.
If it’s a buyer’s market, then there are more homes available than there are other buyers, so the buyers have “all the power” when it comes down to the asking price.
In a seller’s market, there are more buyers than there are homes available, so buyers will need to compete against others to secure a home.
In this instance, the raised market values of a home, are because more buyers are wanting to stand out in their offer, which influences the appraisal value.
If this seems confusing or overwhelming—you’re not alone.
The market value can influence the appraisal value negatively, and in turn affect you, the buyer, by receiving a low appraisal value and hindering your mortgage rates.
Another reason an appraisal may come back at a lower value is if the homes in the surrounding area aren’t comparable to the home you are looking to purchase.
In this instance, your home may have more upgrades, or fewer, which wouldn’t provide an accurate comparison of the home’s value.
Unfortunately, sometimes it also comes down to a lack of information or missed information. If an appraiser inaccurately estimates square footage or doesn’t consider the home’s age accurately, then you may receive a lower appraisal value.
GO Mortgage can help
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