How Property Appraisals Affect Home Buying Activities

In home buying, your financial condition is not the only factor that mortgage lenders will consider when they are trying to decide whether to approve your loan application or not. There is also the issue of the property appraisal.

The appraisal value of the property that the buyer is planning to purchase influences a lender's decision on whether to approve the loan application or reject it. To better understand how property appraising works, read on.

How Appraisal Values are Arrived at

The whole process starts when the mortgage lender sends a professional appraiser to examine the property that the loan applicant is planning to buy. The appraiser will try to value the property by comparing its selling price with recent residential sales in the area. Upgrades and additional features of the house will also be taken into consideration.

These upgrades can include kitchen renovations and remodeling efforts and other improvements done in any of the rooms. Add-ons like a swimming pool, a new porch or a garage extension will also be considered. The problem will come if the appraiser gives the property a lower value than the actual price being asked for by the seller.

How a Low Appraisal Affects the Loan Application

When the value given by the lender's appraiser to the property you plan to buy is lower than the selling price, then it can stall the whole deal. Even if you and the seller have already agreed on a price and that price is higher than the appraisal value as determined by the lender's appraiser, the lender will only provide you with a loan in the amount equivalent to their appraisal result.

If you are purchasing a home in cash, then this will not be a problem. However, if you require a loan, a low appraisal can be a problem. Most lender appraisers' consider a lot of other factors when determining the value of a property, including the general status of housing in the given area, that is why most of the time, lender's appraisals are lower than the asking price.

Impact of the Low Appraisal

Most of the time, a low appraisal from a lender's appraiser actually benefits the buyer. For one, he will avoid paying a lot more for a property that actually should cost less. However, it can also prevent the deal from going through with the lender and this could be a problem, particularly if you are eager and willing to purchase the house at its original asking price.

There are various options a buyer can explore to resolve this problem. One is to ask the seller to lower his asking price. In a difficult economic condition and among sellers who are highly-motivated to sell, the usual route is to lower the asking price to the level of the appraiser's value. However, there are times when a seller will stand his ground. When this happens, either the buyer will be forced to look for another property or he will have to shoulder or pay in cash the difference between the appraisal value and the asking price for the property, just to complete the whole home buying process and just so he can acquire the property.

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