Buying a home can be a complex process with many important steps. You may have looked at several homes before finding the right one. You submit a purchase contract. After one or more counteroffers, the purchase contract has finally been accepted. Congratulations, you have almost bought a home.
There are still several steps necessary, which must take place to satisfy the conditions of the purchase agreement. The first of these steps is getting the appraisal done. In most instances, the lender will only loan about 75% – 95% of the value of the home. The buyer must come up with the balance, called the down payment. Key to getting a mortgage approved is the appraised value of the property.
A licensed real estate appraiser performs this service. The lender, in most circumstances, will want to use their own appraiser. The appraiser contacts the real estate agent who coordinates the appraisal. The appraiser will assess the property using a complex set of criteria to arrive at the appraised value of the property. The appraised value is just the opinion of the appraiser of what the property is worth at some point in time, but the result of the appraisal is king when it comes to getting your mortgage.
If the property appraises for less than the purchase price, then you will have to make a decision. The lender will probably still loan you the money, but only a percentage of it. Your choices are to make a larger down payment, re-negotiate the price, or allow the purchase contract to lapse and keep looking at other properties. Your real estate agent will discuss these options with you and help you make a decision. If the purchase agreement lapses because the property did not appraise to the purchase price, the buyer's good faith deposit will be returned.
The appraisal is the most important condition met in the purchase agreement. It can make or break the deal, depending upon the results. However, once the property appraises, you are well on the way to closing the deal.