What is an appraisal?
Appraisal is done by a disinterested third party that's either ordered by the loan officer or by the mortgage company or with a VA loan, by the Veteran's Administration. It could be ordered by the actual lender and what it does is it goes out and the appraiser does a couple of different things.
The first thing he does is they make sure that there is actually a property there. That sounds kind of funny but that's what they do. They make sure there is a property there. They review the property to make sure the house is in livable condition and then they make sure that you are not paying too much for the house. They are going to review what they call comparables which are recent sales in that neighborhood or as close to that neighbor as they can possibly get to make sure that you are buying a house for a 100 that is not worth 50 because you don't want to overpay for the house because the lender is only going to lend you the sales price or the appraised value or whichever one is less.
So, if that the sales price is a $100,000.00 they are only going to lend you a $100,000.00. If the appraisal comes in at a 100, then you are fine. If the appraisal comes in at a $101,000.00 well, then you are still fine but if it comes in at $99,000.00 well, then that gives you the ability to go back to your seller and either renegotiate to a lower price, opt out of the contract or if you really like the house and you can't renegotiate the contract, you can bring that extra $1000.00 to closing.
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