You Made An Offer. Now Why Do You Need A Home Appraisal?

If you've found a home you loved and offered what you thought it was worth, the homeowner accepted the offer, then you likely feel excited about your purchase. You may wonder, then, why the bank now needs to appraise the home. You feel it's worth the price you offered, so why does the bank need to determine its worth as well? As it turns out, the appraisal is an important part of the bank's process of determining whether they are willing to issue a mortgage loan, and how much they are willing to lend. Here's a closer look.

Why is an appraisal necessary?

Home value is, to some degree, a matter of opinion. A home may be worth a certain amount to you, but it may not be worth as much to someone else. Since the bank is assuming risk by lending you money to buy the home, they want to protect their interests. They want to make sure that, if you stop paying for the home and they have to sell it, they can get enough for it to cover their costs. 

The bank goes into the appraisal knowing how much you offered for the home. So really, they are just trying to figure out whether they agree that the home is worth that much.

What will the bank take into consideration during the appraisal?

There are a lot of factors that play into the appraisal. Of course, the bank appraiser will look at the condition of the home. They'll check that the roof is secure, the foundation is stable, and the HVAC and plumbing equipment is in good repair. They'll also assess the home in a more cosmetic way. Is it modernized, or does it need some updates? A home that needs updates won't appraise as high, even if the materials there are still in good shape.

The bank will also consider factors such as the neighborhood where the home is located, the quality of the school district, and the condition of neighboring homes. These factors all affect how easy a home is to sell and how much it will sell for.

What happens if the home does not appraise for the amount you offered?

If the bank determines that the home is not worth as much as you offered for it, there are a few approaches you can take. You can reduce the amount of your offer to the seller. Often the seller will accept since they know another buyer is likely to run into the same issue with the bank. You could also put more money down. If you pay more outright for the home and borrow less, the bank is taking on less risk and will be more willing to lend to you.

Having a home appraised by the bank can be a little intimidating at first. However, this process usually goes smoothly if you have made a fair offer for the home. Talk to your real estate agent if you have any additional questions about home appraisals.