While there are many challenges, in terms of selling a home effectively, it must be recognized that most potential buyers can only afford to purchase a home by taking advantage of a mortgage purchase. We often discuss the need to ensure that a potential buyer possesses a quality credit rating to qualify, as well as having a responsible approach to taking care of their personal finances and obligations. However, one potential hurdle, which is often overlooked, is whether the property in question will be appraised at a high enough price that a lending institution will often be the most favorable loan! Unfortunately (but the reality is), the evaluation process and procedure is far from perfect and contains flaws, sometimes creating undesirable challenges and/or obstacles. This article will briefly examine 5 of these possibilities, which could have a negative impact on a potential transaction.
one. Price higher than what the market indicates: There are times when a buyer, either because he doesn’t know the market or because he loves a particular home, offers considerably more than the market might dictate. When the credit institute evaluates the house, it shows a lower value and, therefore, the LTV, or loan-to-value, ratio creates resistance to obtaining the best terms, or even the loan at all. A prepared buyer understands this and, if he still wants the house, he must put down a considerably higher down payment, lest it become a negative factor!
two. Wrong “offsets”: There are times when an appraiser improperly undervalues a subject property because they use the wrong properties to compare the home to and/or are not fully familiar with the local real estate market. Be careful if the appraisal is compared to a Colonial-style house, with Capes, etc. Look closely at the features of all the properties and either the buyer and/or his realtor should help, guide the appraiser, to the most suitable homes.
3. The appraiser does not know the local market: Each real estate market has certain specific characteristics and, in some cases, there may be several micro-markets, even within a local area. If the appraiser is not familiar, he or she can compare a home in a more desirable market with one in a less valuable one. Remember the edict Rent, rent, rent!
Four. Mistakes: Check carefully, to discover and learn, if there is any error, involved, in the description of the characteristics, etc., of the house in question (yours). Typical areas to check include the conditions described (windows, doors, HVAC, bathrooms, kitchens, patio, deck, etc.). Has the appraiser subtracted when he should have added, etc.? Remember, if you think there is a mistake, you have the right to dispute it!
5. inaccuracies: Is the lot size correctly listed? Only the mentioned size, even if one batch, is fully usable, when another is not? Have any of the competitive (“offsets”) properties, overlooked the condition of another house and its impact, etc.
While the appraisal process is important and essential, prospective home buyers should be aware that it is not necessarily accurate or complete. You or your agent must object to any inaccuracies!