It’s important to understand the major contingencies in a purchase agreement, and one of the most important ones is the appraisal.
All lenders will require that a licensed appraiser determine the value of the property. This appraisal represents an unbiased and objective value opinion. The appraiser studies recent comparable sales in the neighborhood, making adjustments for various attributes such as number of bedrooms, bathrooms, parking, remodeling and the like. In the end, he or she arrives at a value for the property, which will hopefully be at least what you’re paying. (The appraisal can sometimes end up being more than you’re paying, which is great for you but doesn’t affect the loan.)
The appraiser submits the appraisal document to the lender, whose underwriter reviews the material. If the appraisal is “at value” for the price you’re paying, the underwriter will approve the appraisal—or could require more time if they have any issues with the content. If the appraisal is under the value you’re paying, the bank won’t kick in the difference. It will then be up to the buyer to bring in more money, or potentially negotiate with the seller to reduce the price. [Read more...]