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As with most things within real estate, appraisals are commonplace in the industry, but are rarely understood by the involved parties, let alone the uninitiated. A real estate appraisal, property valuation or land valuation is the process of developing an opinion of value for real property. Real estate transactions often require appraisals because they occur infrequently and every property is unique, unlike corporate stocks, which are traded daily and are identical. In layman's terms, an appraisal is used by a lender to determine the value of the property, so that in the case that the owner stops making mortgage payments, the lending institution would be able to re-sell the property and recoup the money the lent. If the appraiser comes up with a lower value then what was agreed upon by the buyer and seller, the seller would have to either sell the property at the appraised value, request that the buyer make up the difference in value in cash (good luck) or cancel the transaction and hope for a cash buyer to come next, because if the next buyer is using a loan, chances are high that the next randomly selected appraiser calculates the same value as the first appraiser. Conversely, if the appraiser values the property for more than what is agreed upon by the buyer and seller, then the buyer starts off their home ownership with free equity! With our recent, cooling off from COVID's extreme sellers market, we are starting to see some appraisals come in low because lenders are clamping down on appraisers, contesting more values and requesting additional comps in some situations. Additionally, a large number of sellers are having a hard time letting go of the expectations from the scorching hot COVID market, which turns into an overpriced listing which creates more opportunity for a low appraisal. Contact me today if you'd like to know more about appraisals and their place in our local market!
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