Real Estate Advice

What Buyers Should Know about Appraisals

There are so many things to learn and understand when it comes to a real estate transaction. To understand how the appraisal process works and how an appraiser determines a home’s value you can always consult an experienced REALTOR, but it’s also a good idea to have your own understanding of the process. After all, this is one of the largest purchases you’ll ever make in your life.

An appraisal is an unbiased professional opinion of a home’s value. In a purchase and sale transaction, appraisals are used to determine whether the home’s contract price is appropriate given the home’s condition, location, and features. When you’re buying a home, and you’re under contract, the appraisal will be one of the primary steps in the closing process if you are using a mortgage. The bank wants to ensure they aren’t lending the borrower more money than the home is worth, it’s one of their protection measures.

Fact: If the borrower should default on the mortgage and go into foreclosure, the lender will recoup the money it lent by selling the home.

During the transaction, it is common for lenders to order the appraisal but the borrower pays for it. The appraiser must be impartial and have no direct or indirect interest in the transaction as well as be fairly familiar with the area in which the “subject property,” a.k.a. the home you are buying, is located. A property’s appraisal value is influenced by recent sales of similar properties and by current market trends as well as the home’s amenities, the number of bedrooms and bathrooms, recent updates, and square footage. The comparable properties used to determine the value often need to be within .5 miles of subject property and no further. (At times, there is exception made as long as it’s accompanied by a valid explanation for why one of the selected comparable homes is outside of the .5mile radius.)
After the appraiser has done a complete visual inspection of the interior and exterior and note any conditions that adversely affect the property’s value he creates his report. This process can take between 5-10 days but can also be ordered “on a rush” in which case it is usually be a turnaround time of 3-5 days. If the appraisal comes in at or above the contract price, the transaction proceeds as planned. If the appraisal comes in below the contract price, however, it can delay or derail the transaction.

KRG Tip: Since the borrower is paying for the appraisal they are not required to share the report with anyone other than the bank. As a buyer, you should seek guidance from your Realtor on whether you should share the appraisal with the seller.

Chances are neither you nor the seller wants the transaction to fall through. As the buyer, you have an advantage in that a low appraisal can serve as a negotiating tool to convince the seller to lower the price. However, if buyer and seller cannot agree to lower the price due to the appraisal, the transaction could fall out of escrow, and the buyer would receive their earnest money deposit back but lose the house.

Fact: The appraisal contingency is in place to ensure the earnest money is returned to the buyer in this very event.

If a bad appraisal is standing between you and your home purchase, look into getting a second opinion via another appraisal or seek the help from your Realtor. There will be additional costs for hiring another appraiser, but your Realtor will at no cost be able to correct or add information the appraiser may not be privy to, such as attributes of a neighborhood that make it more desirable, market trends, school districts, etc. These little details can make a big difference in the end value of a home. For instance, a home that has road noise might be valued at $10-15,000 less than a quiet home!
Great Realtors like KRG tour local homes every week and know each one’s pros and cons as well as those little fine points that come in handy when you need it!

To Learn more, Karen Richardson Group is a full service real estate team located in the East Bay and can be reached at 925.639.3904 or 925.438.2011 /


Karen Richardson Group @ Alain Pinel Realtors BRE#01407557

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