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The following contribution comes from our Anthony Pellegrino of FM Lending who tells you why a home appraisal is so important. Thanks,  Anthony!

106 Windswept Lane, Cary – contingent listing by Emina Wayne of FM Lochmere

There is More to a Home Appraisal Than You Think

You’ve made the decision to buy your new (or next) home right here in the Triangle. There are many steps to take in this process, including home inspections and home appraisals. To help you understand what to expect with the latter, here is a brief summary of the appraisal process.

Home Appraisals are often the most important part of the transaction and the least understood. Over the last 6 or 7 years the appraisal has been under more and more scrutiny from the banks and underwriters. What homeowners should realize is that the Appraiser has to answer to one entity and only one, the bank purchasing the loan. The Appraiser does not work for the buyer or the seller, they work for the lender.

Essentially, the Appraiser will visually inspect the home, take pictures, measure each room and then compare that home to others that have sold as close in proximity to the subject and as recently as possible. Ideally, the bank would like the Appraiser to compare the subject property to 3-6 “comparables” or “comps” as they are referred to. These comps will all hopefully be within the last three months (if available) or as far back as 6 months to a year if there are no other recent sales available for reference. Basically, that’s what the Appraiser will do.

Unfortunately, the appraisal process is not always a smooth one. There are many things that could come up that complicate it even more. Here are just a few examples of issues you could run into with the appraisal being done on the home you’d like to purchase:

1. If there have been several foreclosures or short sales on your street, then your home may not appraise high enough.

2. If the property is unique (i.e. has more acreage than is common for the area or it may have solar panels or a property that is much larger than anything else in the neighborhood, etc.) then this may cause your home not to appraise.

3. The seller makes too many financing concessions to the buyer. For example, the seller is paying $5k in closing costs and throwing in a washer, dryer, and big screen TV. These items have no added value to the home, but are often included in the price by the agents during negotiations. This can also cause the home not to appraise high enough.

These are a few issues that will cause a potential “red flag” by the bank and require the Appraiser to comment on and make adjustments to the value.

Appraisers today are having a harder time than ever with all of the new regulations and conditions put on them by the lenders/banks. The average buyer or seller doesn’t have a full understanding of the process and that makes it even more difficult to complete the appraisal and thus, the sale of the home you desire successfully and efficiently.

As we just said, this is just a sampling of what to expect in the appraisal process. If you are purchasing a new (or your next) home in the Triangle this spring and would like to understand it further, please contact your FM Lending NC Mortgage Consultant or your REALTOR®. We’re always happy to answer any questions you may have.

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