Real Estate Appraisals And Why They Matter To You
Whether you’re the buyer or the seller, an appraisal is important if the purchase is going through a lender. Lenders require an appraisal because they typically only lend a certain percentage of the purchase price, which is driven by the appraised price or appraised value of the property.
As the buyer, you’re still able to purchase a property at a price exceeding the appraised value, but you should be entering into that transaction knowingly.
If you’ve offered $20,000 more than the appraised value and it’s accepted by the seller, the lender will only lend 80% of the appraised price. You can quickly see how much cash you’re going to need at the time of purchase even when you’re financing.
It isn’t necessarily recommended that you get an appraisal for a property until you have a serious intent to purchase. While the appraisal is going to be an expense, it may protect you from paying more than the property is worth.
An appraisal can very quickly change what your transaction is going to look like. A property appraisal lower than expected may change a transaction from being $100,000 cash at close versus $80,000 with no cash. It can change the structure of your loan, so it’s very important to get that appraisal to see what the numbers are going to be.
When A Seller Would Want To Obtain An Appraisal
The appraisal is typically obtained by the buyer, since it is more to their benefit, but there are circumstances in which the seller may obtain their own appraisal. One such circumstance would be if the property is unique or higher-end.
A good example of a situation where the seller would want to obtain an appraisal would be if the property is farmland, has 40 acres, and is zoned for agriculture. You can certainly live there, though the ‘agricultural’ zoning would prohibit any other use of the land. How do you value that property, though, when there aren’t a lot of comparable properties in the area? A seller would want an appraisal to have a better idea of the value of their property and to determine if an offer is adequate.