Author: Cachet Gomes
A real estate appraisal is important when you take out a mortgage loan to purchase a property. It helps to determine the market value of the property you’re planning to purchase. The lender also requires an appraisal to verify that if required, whether or not the invested amount can be recovered by selling the property.
Residential appraisal report – Its importance
If you take out a mortgage loan to purchase a house, then the final commitment usually depends upon a residential real estate appraisal. This is because the banks wants to make sure that their invested amount is covered in case you default on payments.
Value of the property – If the appraised value is less than the sale price, then the lender may not offer you the mortgage loan to purchase the property.
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.
Low real estate appraisal – The solutions
There are several solutions to a low real estate appraisal. The solutions are discussed below.
Order for a second appraisal – The seller or the buyer can order for a second appraisal. While doing so, you can ask the lender for a list of approved appraisers if you’re taking out an FHA loan. Often, the second appraisal is much more than the first one, especially if the property is appraised by an inexperienced appraiser in the first time.
Seller can reduce the sale price – By reducing the sale price, the seller can settle the deal as it may take longer time to sell the property if the buyer denies to purchase the property.
Buyer can pay the difference in cash – The buyer can pay the difference in cash to the seller.
Seller can create a second mortgage – The seller can cerate a second lien on the property. You can agree to pay a lump sum amount to the seller at a later date.
Supply comparable sales list – With the help of a real estate agent, the buyer can access a list of recent comparable sales that confirm the agreed-to-sales price. By submitting the list to the lender, the buyer can ask for a review of the real estate appraisal. You may also ask your real estate agent to call the listing agents and inquire the actual sale prices of the comparable properties.
Apart from the above options, you, as a buyer, have every right to cancel the transaction and ask the seller to return the earnest money deposit, which you’ve paid (as a part of down payment) at the time of signing the purchase agreement.
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