An appraisal is an estimate of the value of a property, made by a qualified professional,
called an appraiser. An appraisal of the property you want to purchase is as important as
your credit history in obtaining a mortgage and is a critical factor in determining how much
of a mortgage the bank or mortgage company will approve. After all, the property you are
purchasing serves as collateral for the loan.
The appraiser generally is chosen by the mortgage lender, or you can locate a qualified
appraiser by contacting one of the professional organizations, such as the Appraisal Institute or the American Society of Appraisers.
You will be refused a mortgage, or offered a smaller amount on the mortgage, if the
appraisal falls short of the amount you wish to borrow. You will have to make up the
difference with a larger down payment, or renegotiate the sale price with the seller.
To avoid this situation, make certain you ask your Realtor for a Comparative Market
Analysis, also known as a CMA or "comps," before you buy your dream home. The CMA shows
recent sales of properties in the neighborhood where you want to buy a home. Not only does
it let you know whether you're paying a fair price for the property, but it also can provide
a clue as to the value of your property from an appraiser's perspective.
The appraiser looks at your home from two separate angles to determine its value:
- What it would cost to rebuild the home
- How it compares to other properties of similar size, quality and location that have sold
recently.
Banks and mortgage companies frequently complain that some borrowers think their properties
are worth more than they actually are, and then are disappointed by the loan amount they are
approved for. This situation can be avoided if you ask for the CMA report before making an
offer on the property.
Tip
You are entitled by federal law to a copy of the property appraisal, which you may need to
examine closely if the appraisal is low.
What to Do If the Appraisal is Low:
- Obtain a copy of the appraisal report.
- You can ask the lender to override the estimate or request a new report from another
appraiser.
You can make a case to raise the estimate if you can show that the appraiser overlooked a
significant feature of the home or failed to consider a recent sale for a higher price.