Attention North Houston Homebuyers: Here’s What You Should Know About Home Appraisals

Many people confuse the appraisal with the home inspection. While both of these services are designed to evaluate a property before a buyer purchases it, the two serve very different purposes.

Home Inspection vs. Home Appraisal
A home inspection is intended to assess a home from a safety and structural standpoint. It takes stock of all the systems, appliances, doors, windows, walls, and even the foundation and roof of the home, and lets a buyer know if any issues exist before they decide to buy.

An appraisal, on the other hand, is more of a value-based assessment of the property. Instead of looking at the very detailed components of the home, an appraiser looks at the bigger picture – what the home is worth and how it compares to other properties (also called comparables) in the area.

What’s the Point?
By the time an appraisal is done, buyers are well into the purchasing process. They’ve already seen the home, made an offer, and their offer has been accepted by the seller. So isn’t it a little late to be assessing the property’s value?

Nope! This valuation is used for the lender’s purposes. Say a buyer put in an offer of $150,000 on a home. The seller accepted, and the sale is moving forward. Once the option period has ended, the buyer’s chosen mortgage lender will send out an appraiser to evaluate the property, putting a number on its overall worth. They’ll take into account the market, comps, any upgrades the seller has put on the home and the depreciation of the property.

The goal of this process is simple: to make sure the home is actually worth what the buyer offered.

Sometimes, appraised values come in lower than a buyer’s bid – especially if the market is hot, inventory is low or there was a bidding war. When this happens, the mortgage lender will only pay up to the appraised value – nothing more. In this case, a buyer has a few options:

• They can renegotiate the deal. They can go back to the seller and try to renegotiate a lower price – ideally one closer to the appraised value of the home.
• They can pay the difference. If a buyer offered $150K, but the home only appraised at $130K, they’d need to pay the $20K difference out of pocket.
• They can purchase a second appraisal. Though it will be an out-of-pocket cost, buyers can hire a second appraiser to evaluate the home and hope the new valuation is a bit higher.
• They can ask the seller to refinance. Though it’s not very common, some sellers will “loan” the difference to the buyer and let them pay it back over time, plus interest.

The appraisal is just one of many moving parts in the home buying process. Make sure you have a qualified North Houston real estate agent by your side to walk you through every step.