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What to Expect When the Appraisal Comes In

What to Expect from Your Appraisal | Buyer and Seller Side of Real Estate

Hi. Rachel Beasley here with That Fit Team, but you probably already knew that. Today we’re here to talk about what happens when the appraisal comes in. So whether you’re a buyer or a seller, this is a big question and a very important part of buying and selling a home. We’re going to talk about what this looks like from both perspectives, a buyer’s perspective and a seller’s perspective. But first, let’s start with a buyer’s perspective. So you have a contract on a home. You’ve gotten through your due diligence period. Your agent has probably talked to your lender and ordered that appraisal and now the appraisal has occurred. What that actually is, is it’s an appraiser going out to inspect the home. He walks through. He does his report, takes about two weeks.

The Home Value

And so now, you know, what did that value come at? In at is the big question. You want to know, the lender wants to know and the seller wants to know. So let’s say that value of the appraisal came in at or around your contract price. Well, that is an awesome thing. And that’s really what you’re looking for. What the appraiser is doing is, is looking for the value of your home at market value and what the lendable value should be. So in a market where it might be a crazy seller’s market and people are going over asking price, you know, appraisals might come in a little lower than expected or they might come in lower than your sales price because maybe you were willing to put an extra $50,000 above asking price just to get the home.

So this is why we’re having this conversation. We are in a seller’s market right now and 2022, which means people are going above asking price, which means they’re going above probably the market value of that home. So what happens when the appraisal comes in low, lower than your sales price? Well, at that point we need to go back to the contract. What does the contract say at that point? We’re going back to the contract you cannot get a loan for more than what that home appraises for you and the seller as a buyer and your real estate agents. Let them battle it out for you so you could take the emotion out of the decision making and find a compromise that everyone can afford and everyone’s happy with. So when that appraisal comes in and let’s say it comes in lower than the sales price that you’re at, what that means is you are going to have to have those hard conversations with your lender. You’re going to have to have conversations with the seller and the listing agent to find out if they’re willing to come off of that sales price that you have under contract.

And work with you a little bit. You’re also going to have to go and look at your financials, see what kind of money that you have that you could bring to the closing table to bridge that gap. In other words, you as the buyer are going to have to bring more money than you expected to the closing table if the appraisal comes in low.

The Importance of a Good Agent

Listen to me. It’s very important to have a good real estate agent or realtor on your side to help you through this process. There are things that you and your lender and your real estate agent can work out, get creative to help make that gap a little bit smaller. Also negotiating with the seller to see if he’s willing to come down on that sales price also helps a whole lot in the end. Now, let’s say that appraisal came in. Let’s flip the other coin. Let’s say the appraisal came in higher than your sales price. Well, hot diggity dog it’s time to do a little happy dance because that means you’re actually purchasing a home with equity. And in a seller’s market, that’s a little bit unheard of. So if you are one of those people, just consider yourself really, really lucky.

And you might want to bring that appraisal in six weeks to a lender and see if you can get an equity line of credit. But I’m not giving you lending advice. Talk to your lender about that. If you’re appraisal comes in higher than your sales price, that’s actually a really awesome thing. It means that you’re walking into the home with some equity and everyone loves equity in their home. Now, there are some instances here’s your third scenario that we’re going to talk about today. Let’s say the appraisal came in, the value is good, so the value is good means it came in at your sales price or maybe a little bit higher. The appraiser is going to require some repairs to be done on the home in order for it to pass that process.

The lender will not lend on the home until that of those items are completed. On from that appraisal, the lender will not be able to give you a clear to close and close on that home until those items that were flagged on the appraisal have been taken care of. Typically in a scenario where you’re getting a loan, a conventional loan, we really don’t see a lot of repairs being required on conventional loan appraisals. But if you’re getting an FHA loan or a VA loan, it’s very common to have repairs that are required by the appraisal.

And most of the time those are things like they found wood rot. Or maybe the roof needed some work and needed some shingles to be replaced. Those are the kind of things that that appraiser is looking for.

Home Repairs Negotiations

So if you’re purchasing a home that may not be like new construction or in tiptop condition, every home here in Hampton Roads has to live through the humidity that we all live through. So it’s not uncommon to have a home that may have some required repairs to be done. It’s not something to be concerned about, but you are as the buyer actually protected in the contract where the seller is responsible for up to 1% of the sales price to make those repairs done. So there’s no negotiate in there as long as those repairs are under 1% of your sales price. Now, Sellers, I just said something that’s pretty important that sometimes gets overlooked in that seller consultation when you’re meeting with your realtor. Yes, you are responsible for up to 1% of the sales price. If the appraisal comes in with some required repairs.

So it’s something to keep in mind in your budget. When you’re working the numbers, make sure you’re talking to your realtor real estate agent about that. So you’re fully aware and a lot of the time an agent will be able to walk through your home and give you an idea of whether or not you may be prepared for this. If your home’s in tip top condition, you might not have to be worried about that at all. But let’s say your house is a little bit aged and maybe needs some maintenance or maybe your home isn’t quite in tiptop condition and that’s OK. That’s most of the homes here in Hampton Roads. It’s all right. I would be prepared for that.

So in the scenario where the appraisal comes in and there is required repairs and let’s say those repairs are actually going to be more than 1% of the sales price, well, this is a little bit of a downer. And it’s one of those scenarios where everyone just kind of has to have an open mind. And this is where your real estate agent and real estate realtor team comes into play because this is actually going to be one of the most important negotiations that you’re going to do in the process. Everyone is ready to close at this point. The seller has probably already moved half of their belongings in the boxes. The buyer has already imagined where all of their furniture is going to go. In this new home, everyone is ready to go to the closing table except for this one last hurdle. And this is where you and your real estate agent need to have good, open, sometimes tough communication.

And this is one of those times where there’s another negotiation period, and everyone needs to be a little bit open to give a little bit. So in this scenario, you’re probably going to be asking the seller to pay more money out of their proceeds than they expected. As a buyer, you can maybe raise the sales price if you have a couple thousand dollars in that appraisal price to to work with the seller on those items. Remember, they’re already spending 1% of the sales price. Maybe you asked for closing cost assistance and the seller was helping you out with that. It might be time to maybe reduce those closing costs, assistance. Or seller if you’re in a scenario where the buyer just doesn’t have the funds to bring and help you out with that scenario, you might just have to eat that process.

How to Get Ahead as A Seller

So right now I’m going to talk to my sellers. Here are a few tips that will help you when it comes to this appraisal process. Now, let’s say that you own a home and you’re selling your home and it has wood siding and you know, you haven’t painted this wood siding since you moved into this house five years ago. Well, it’s very possible that that wood siding might have some maintenance that needs to happen to it. And we’re talking, you know, scraping and painting, and that’s that can get a little pricey because it’s a lot of labor or let’s just say, you know, you’ve got your front door and it’s got rain going in on it. And every once in a while you notice that you’ve got a sticky door or something.

That’s probably a good indicator that you’ve got some wood rot going on around your door. So those are the things that you can be aware of and cautious of. Have your real estate agent kind of walk through those things and help you eyeball them. Or you can get a pre listing inspection of your home. And that would really alleviate a lot of those questions.

So if you are concerned in any way, that might be a good indication in that you should get a pre listing inspection on your home to help get in front of those issues ahead of time. Because the last thing you want is to get an offer on your home and get to the appraisal process, which is normally about a week or two before closing, and find out that you’ve got to put out a lot of money for these appraisal repairs. Another thing that you can do is you can actually be picky about the loan type that the buyer’s using. Now, I’m not saying you can change the buyer’s loan that they’re using, but if you have multiple offers, then your best bet is going to be go for a cash offer or a conventional offer. And that really is because the appraisal requirements for the conventional loan process is not as stringent as the VA or the FHA.

And this is just one of those yucky things about real estate. It is what it is. I’m not saying that I wrote those rules. I certainly did not. I don’t think it’s very fair. But there are just higher regulations when it comes to an FHA or a VA appraisal. And so those typically do require some repairs. And if you’re not willing or you feel like you might have repairs are going to be required on your home, more than 1% it might behoove you to get in front of some of those repairs before that appraisal. I’m not here to tell you exactly what to do because every scenario is different. I’ve seen it gone a million different ways, a thousand different ways. So make sure you have a good real estate team on your side. Negotiate hard and strong on your behalf. But in the end, help everyone get to that goal, which is the seller to sell the home and the buyer to get the home that they desired.

So that’s really the biggest thing there, guys. Sometimes real estate, when it comes to buying and selling, you’re working with a lot of people’s emotions and sometimes it’s up to the real estate agents to take that emotion out and really help everybody see big picture. We kind of have that bird’s eye view and see that, you know what what might be good for everyone. There’s always a solution there. So hopefully this video was helpful to you.

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