After looking at what feels like hundreds of Stone Oak homes, you finally found "the one". Once negotiations finished, you and the seller agreed upon a fair sale price. You need to take out a mortgage to pay for your happy piece of the Stone Oak lifestyle. As part of the loan process, the mortgage company requires that a home appraisal be performed. Why do they need the appraisal and what effect does it have on your mortgage loan?

Why Does Your Bank Require a Home Appraisal?

Home Appraisal - Search homes for sale in the San Antonio areaYou might think of a real estate transaction as a business deal between the buyer and the seller. But, the lender is also an investor in the least until the buyer finishes paying off the loan. As such, they have a vested interest in making sure that the property in question is worth the purchase price. If you (the buyer) defaults on your loan, they are the ones that will reclaim the property and have to sell it off to recoup their costs. Therefore, they aren't willing to lend the buyer more than the property is currently worth. That would be a bad investment. Thus, a home appraisal is required.

Who Pays for the Home Appraisal?

The lender hires the home appraiser and pays them initially. But the buyer reimburses them the cost of the appraisal fee (typically $300-$400) as part of the closing costs. Technically, the appraiser works for the mortgage company as an unbiased third party. Neither the buyer nor the seller is allowed to be on the property when the appraiser does their job. That helps keep both the appraiser and the home appraisal as honest as possible. The buyer will receive a copy of the appraisal once it's completed.

What if the Home Appraisal Comes Under the Agreed Upon Sale Price?

When this happens, the buyer has four options. First, you could pay for another appraisal out of pocket. However, you run the risk of it saying the same thing as the first appraisal. Secondly, you could ask the seller to lower the sale price to match the appraisal. As you can imagine, that's not an option that sellers like. Thirdly, you bring cash to the table to cover the difference. For some buyers, most of their cash tends to be wrapped up in the down payment, home inspection, and closing costs. Coming up with thousands of dollars extra could prove difficult. Finally, you could walk away from the deal altogether. As long as you have a home appraisal contingency in your sales contract, you'll even receive your earnest money back. While this may feel like a crushing blow at first, keep in mind that it actually saves you from paying more for a property than it's worth. And that's money in the bank.

LUX Move Up* by Christine Aldrete Banks, CRS, SRS, RSPS