Once the P & S is executed by all parties, the lender will order an appraisal to be done on the property. Typically this is an additional charge that you will need to pay out of pocket prior to the appointment. The appraiser will contact the listing agent to schedule the appointment. You will not need to be present for the appraisal, however, your real estate professional should let you know when the appraisal has occurred.
The appraiser will evaluate the property you intend to buy to determine it’s value. There are several factors that are taken into consideration. The value will be determined by comparing the subject property with other properties that have sold in the area. In some cases, adjustments will be need to be made to come up with the value. You will receive a copy of the appraiser’s report indicating his opinion of the value of the property you are about to purchase. You’ll want to know that the property was valued at or above the purchase price. The lender will not approve a mortgage loan amount below the value of the property.
In the event that the property’s value falls below the amount to be financed further discussions will need to occur between the parties and, subsequently, decisions will need to be made. There will be three options available:
– you and the seller can re-negotiate the offer price based on the appraised value
– you, as the buyer, can agree to pay the additional monies out of pocket or
– you can terminate the contract if you and the seller cannot agree on a resolution.
The possibility of the appraised value falling below the anticipated finance amount should always be discussed as a “what if” prior to drawing up any offer. This possibility should be a part of the language of any offer as a way of being proactive. You’ll want to decide a head of time what you are willing to do in this instance because TIME IS OF THE ESSENCE.