Appraisal
Also known as: Home Appraisal, Property Appraisal
An independent professional assessment of a home's market value, required by mortgage lenders to ensure the loan amount does not exceed the property's worth.
Detailed Explanation
Before your lender funds the mortgage, they require an appraisal to verify that the home is worth at least the purchase price. A licensed appraiser inspects the home and compares it to recent sales of similar homes in the area.
In new construction, appraisals can be challenging because there may be fewer comparable sales in a new community. The appraiser may need to look at sales in nearby communities or adjust for differences in finishes and features.
If the appraisal comes in below the purchase price (a "low appraisal"), you may need to pay the difference in cash, renegotiate the price, or cancel the contract (if you have an appraisal contingency).
In Your Contract
Check whether your contract includes an appraisal contingency. Many builder contracts do not, which means you must close at the agreed price regardless of the appraised value.
Key Points
- 1Required by mortgage lenders to verify the home's value.
- 2If the appraisal is low, you may owe the difference in cash.
- 3Many builder contracts do not include an appraisal contingency.
- 4New construction appraisals can be challenging due to limited comparable sales.
- 5The appraisal fee is part of your closing costs.
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