If you intend to sell your home, did you know it actually has to be sold twice?
Obviously, the sale of your home to the next owner is one of the two sales. But what many people don’t realize is that your home must also be “sold” to the bank through the appraisal process.
In today’s post, we discuss that second sale – the one to the bank’s appraiser – and explain why that sale is even more difficult than selling to a potential buyer.
What is an Appraisal?
First of all, an appraisal is an estimated value of your property. Value is determined by a number of different factors, including location, the condition of the home, and any amenities on the property, such as a shop or a barn.
A third-party appraiser conducts the appraisal process. The appraiser doesn’t work for you or your Realtor, the buyer or their Realtor, or the bank. Instead, the appraiser is a certified and licensed independent contractor.
Why does your home have to be “sold” to the bank through an appraisal? Good question!
Why Appraisals are Necessary
Basically, appraisals give the lender an accurate assessment of the home’s value, thus informing them of how much money they should loan the buyer to purchase the home. If the appraisal is close to the price of the home, the buyer can get a loan for an appropriate amount, making the sale much more likely. But if the appraisal comes in low, the buyer may not be able to purchase the home unless they have money set aside to make up the difference.
The Dangers of Low Appraisals
Low appraisals have become more common this year for a couple of reasons. First, in some areas where home prices are rising rapidly, it can be difficult for appraisers to find comparable properties on which to base the value of a home, which may lead to a low or short appraisal value. This isn’t so much of an issue in Fremont County as our prices are holding pretty steady. However, sometimes our properties are more unique, which makes it difficult for appraisers to find a comparable property.
Second, a recent change by Fannie Mae, the federal government’s mortgage lending giant, to its Collateral Underwriter has made the appraisal process even more important. The Collateral Underwriter provides a risk assessment of appraisals. Appraisals with quality issues, compliance violations, and overvaluations are flagged as having heightened risk.
The last component – overvaluation – is the one that is causing some problems for buyers and sellers. Since the changes to the Collateral Underwriter, the number of contracts that have fallen through due to appraisal issues has risen to 8%. Many of these failed deals were the result of short appraisals.
What This Means for You
The changes by Fannie Mae mean that some appraisers are actually undervaluing homes in an effort to avoid getting their appraisals flagged as an overvaluation. With short appraisal values, some buyers are unable to secure the funding they need to purchase a home. So, if you’re selling a home, this means that justifying your home’s price to the bank might become a little more difficult. The “sale” of your home to the lender, as some homeowners have discovered, will determine whether or not the actual sale to the buyer will happen or not.
Buying and selling real estate is a complex undertaking. At Wind River Realty, we seek to help our customers by educating them along the way and making the transaction as smooth as possible. If you have any questions about buying or selling a home, don’t hesitate to contact us at 856-3999 or stop by our office at 309 N. Broadway in Riverton!