What Buyers Should Know about the Home Appraisal

Once you've found a home, written an offer and made it through the inspection, there's usually another important step before closing:

The home appraisal.

Buyers sometimes confuse the appraisal with the home inspection, but they serve two very different purposes.

What Is a Home Appraisal?

If you're financing your purchase, your lender will typically require an appraisal before approving the loan.

The appraiser is an independent professional whose job is to provide the lender with an opinion of the property's market value and evaluate the property as required for the type of financing being used.

The lender wants to make sure the home provides adequate collateral for the amount they're lending you.

For example, if you agree to purchase a home for $450,000, the lender generally wants evidence that the property supports that value.

Appraisal vs. Home Inspection

This is an important distinction.

A home inspector works for you. The inspector evaluates the home's components and systems and helps you understand its condition.

An appraiser works as part of the lender's loan process. The primary purpose of the appraisal is to establish an opinion of value, although certain loan programs may also have property condition requirements.

An appraisal should never be considered a substitute for a professional home inspection.

How Does an Appraiser Determine the Value?

The appraiser will evaluate the property and research comparable homes that have recently sold.

They may consider factors such as:

• Location
• Finished square footage
• Lot size
• Number of bedrooms and bathrooms
• Age and condition
• Quality of construction
• Updates and improvements
• Garages and other amenities
• Recent comparable sales

The appraiser then makes adjustments for differences between your home and the comparable properties to arrive at an opinion of market value.

That value doesn't necessarily have to be exactly the same as your purchase price.

The important question is whether the appraisal supports the value needed for your financing.

Can an Appraiser Require Repairs?

Potentially.

Property requirements can vary depending on whether you're using conventional, FHA, VA, USDA or another type of financing.

Certain loan programs have specific minimum property requirements, and an appraisal may identify conditions that need to be corrected before the lender will approve the loan.

These can sometimes involve safety concerns, structural conditions or other property issues.

If repairs are required, we'll review the purchase agreement, your financing requirements and the appraisal to determine what needs to happen next.

Who Pays for Appraisal-Required Repairs?

That depends on the purchase agreement and what the buyer and seller have agreed to.

In Minnesota purchase agreements, there may be provisions addressing appraisal-required repairs and how much, if anything, the seller has agreed to contribute toward them.

If a required repair exceeds what the seller agreed to pay, there may be additional negotiation between the buyer and seller.

The seller could agree to complete the repair, the parties may negotiate another solution, or there may be circumstances where the transaction cannot move forward.

Your real estate agent and lender will help you understand your options based on your specific purchase agreement and financing.

What If the Home Doesn't Appraise for the Purchase Price?

This is the appraisal issue buyers tend to worry about most.

If the appraised value comes in below the agreed-upon purchase price, it doesn't automatically mean you've lost the house.

Depending on your purchase agreement and financing, there may be several possible solutions. The buyer may bring additional cash, the seller may reduce the price, the buyer and seller may negotiate the difference, or the appraisal may be reviewed if there is evidence supporting a different value.

I've written a complete guide explaining those options here:

Also Read: What Happens If Your Home Appraisal Comes in Low?

The Appraisal Is One More Step Toward Closing

Most appraisals are completed without creating a major problem with the transaction.

And if an issue does come up, that's when having an experienced real estate agent and lender becomes especially important.

We'll help you understand what the appraisal means, what your purchase agreement says and what options you have so you can make an informed decision about how to move forward.

Thinking about buying a home in the Twin Cities?

Contact Myra Jensen at BRIX Real Estate at 763-227-0618 and let's talk about what you're looking for and how I can help.

Your Life. Your Way. You're Home.