An appraisal is a critical step in a real estate transaction, as it provides an objective assessment of a property's value. This benefits both buyers and sellers by ensuring fair pricing, facilitating negotiations, and helping to secure financing.
Sellers - Before listing a property on the market, an appraisal helps sellers determine a realistic listing price for their property. When sellers have a professionally conducted appraisal, it can attract serious buyers who are confident that the asking price is justified. If a buyer's offer is contingent on an appraisal, the seller can be prepared for potential negotiations based on the appraised value. Knowing the property's appraised value can help sellers make informed decisions during negotiations. Without an appraisal, the sale process may be delayed, especially if the buyer obtains financing. Lenders typically require an appraisal to approve the loan, and a delay in the appraisal process can result in a delay in closing the sale.
Buyers - An appraisal helps buyers ensure that they are not overpaying for a property. It provides an independent and unbiased assessment of the property's current market value. Lenders want to confirm that the property is worth as much as the loan amount, which reduces their risk. If the appraisal comes in lower than the purchase price, buyers can use it as a negotiation tool to request a lower price from the seller or renegotiate the terms of the deal. If the renegotiation fails, buyers have to make up for the shortfall or terminate the contract if the contingency is in place. Buyers can use the appraisal to assess the potential return on investment (ROI) of the property and decide whether it aligns with their financial goals.
In this overheated market, sellers should look beyond the offered price when selecting a buyer. A contingency-free deal is worth much more than an inflated offer that might result in renegotiation. Buyers beware: if you need financing, make sure you have enough down payment to cover any shortfall and an appraisal contingency in the event you need to terminate the contract.
