Back during the Tampa real estate boom of 2003-2007, a home appraisal was an entirely different experience. Because home values were rising so quickly, an appraisal almost felt like pulling the handle on a slot machine that was guaranteed to win.
It was not uncommon for a new home buyer to receive an appraisal indicating their new home was valued for tens of thousands of dollars above what they were paying it. Many people made instant equity on their homes.
Times have changed and the real estate market has come back to its senses. Today, a home appraisal is still feels a lot like gambling. However, the odds of winning don’t seem nearly as favorable.
Your lender/bank will order an appraisal on the home you want to finance to make sure they aren’t loaning more than the home is worth. If your appraisal comes in low, your bank will put the brakes on your financing. This creates a number of problems for both the buyer and the seller.
Typically an appraiser will get an idea of your new home’s worth based on the recent sales prices for similar homes in the area. Usually, they will only consider homes that have sold in the past six months. The appraiser doesn’t cherry-pick which homes he or she uses for comparison. So, if some of the nearby homes that sold recently were low-priced short sales or bargain bank-owned foreclosures, this will drive down the average sales price. Ultimately, your new home may be appraised too low for your bank to finance.
The best way to encourage a favorable appraisal is to have an informed Realtor. I attend every appraisal on behalf of clients who are buying a home. Not only do I bring my own “comps” (lists of comparable homes that sold recently), I also prepare a list of all improvements, upgrades and amenities. Home appraisers are licensed professionals who are trained and skilled at determining the value of a home for sale. They are very good at what they do. However, the more information I can provide an appraiser that shows the true value of your new home, the better the chances of a good appraisal.
The buyer pays for the cost of the appraisal, which may run between $400-$500. This fee is folded in to the total costs and fees due at closing.