Whether you are buying or selling a house, a real estate appraisal might affect the transaction. The lender that issues the loan to the buyer requires an appraisal before closing on the home purchase. The lender requires this to ensure that the home is worth the money they lend to the buyer. As a buyer or seller, you should expect an appraisal, and here are the effects it might have on the sale.
The Buyer Can Back Out of the Deal
The first thing to understand is that the appraisal gives the buyer the option to back out of the deal. The buyer can only do this if the house appraises for an amount less than the offer price. For example, if the buyer offers $200,000 for a house, they can back out if the appraisal is less than this amount. Buyers do not always opt-out of deals, though. Instead, they sometimes renegotiate with the seller. If the home in this example appraises for $190,000, the buyer might agree to buy the house if the seller lowers the price to $190,000.
The Lender Might Require a Larger Down Payment
The second thing to understand is that lenders base loan amounts on percentages. A lender might agree to loan a person 90% of the home's appraised value. If the buyer offered $200,000 for the house, the lender might agree to offer $180,000 for the loan. In this case, the buyer would need to come up with $20,000 for the down payment.
If the house appraises for $190,000, the equation changes. The lender might only offer 90% of $190,000, which is $171,000. If the buyer purchases the home for the original price of $200,000, they will need $29,000 for the down payment instead of only $20,000.
The Buyer Might Have to Negotiate
As you can see, the effects so far affect the buyer primarily. The seller also has effects, though. The main one is that they might have to renegotiate with the buyer if they want the deal to go through. If the seller is unwilling to negotiate, the buyer might walk away from the deal. Most buyers do not want to pay prices that exceed the values. Therefore, if you are the seller, you might need to lower your price.
If you are buying or selling a house, you can expect the deal to require a home appraisal. You can learn more about these by speaking with an appraiser or real estate agent.