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Appraisals are important because they give you a professional opinion of the value of the home. While your real estate agent is able to do a comparable market analysis using recently sold statistics, an appraisal is more in-depth and can only be completed by a licensed appraiser.
Typically, they are only required on financed properties. If you are paying cash, you have the option of purchasing an appraisal or not.
Based on the value the appraiser presents to you, you have a few options...
The home you’re buying just appraised for more than the purchase price! What do you do? Nothing! Congratulations. You just made money buying a house, before even getting to the closing table. Though keep in mind the money you have “made” is only on paper - you are now technically buying the home at a discount to its market value, meaning the money you have made is in the home equity. It’s as if an invisible friend has added a little extra to your downpayment, just for being the great person you are!
If the market value stays the same as you own it and you decide to sell or refinance, you can recapture this “gain” then.
The home you’re buying just appraised for less than the purchase price! What do you do? This is when some negotiation will take place, as your lender will not lend on a greater amount than your agreed-upon loan to value. This means you will either have to bring more cash to closing or convince the seller to bring the price down.
Unless you really want the house and are willing to pay more than it’s worth (not usually a smart idea), the best way forward is to re-negotiate the price with the seller. The appraisal is a 3rd party objective opinion of value, so most sellers will recognize the validity of it. What most sellers don’t want you to know is that now YOU as the buyer have all the power. You can walk away from the deal (and lose your due diligence money, typically a few hundred bucks) and they will have to start all over again with marketing the property. Time is money, and usually the home seller will drop the price to ensure the transaction goes through. If not, you will have to assess how much you want the property.
Remember, your closing agent is also available for help should you need it!