Understanding the Importance of Real Estate Appraisals in Indiana
Buying a house in Indiana—or anywhere, for that matter—can be a little bit like entering a maze. There are countless twists and turns, and at each corner, you’re faced with a new term, process, or document you've never heard of before. Fear not, Hoosier home buyers! Today we're demystifying one particular component of this maze that is often misunderstood: the real estate appraisal.
So, what's a real estate appraisal? It’s a crucial piece of the home buying process that determines the fair market value of a property. A licensed appraiser conducts this process, investigating everything from the square footage, number of bedrooms and bathrooms, to the condition of the home, updates in the home, features in the home, age and condition of major components (such as the roof and HVAC), the neighborhood, and comparable sales in the area.
Appraisals are important because they provide an objective opinion about the value of the home you're interested in. Why's that important, you ask? Picture this: You've fallen head over heels for a charmer in Westfield with an asking price of $300,000. But without an appraisal, how do you know if that price is reasonable, or if you're about to overpay for the home?
Here's where the lenders come in. When you apply for a mortgage, your lender wants to make sure the house is worth the amount they're lending you. After all, if you default on the loan, they need to know they can recoup their money. That's where the appraisal comes into play. In most situations , the lender will require you to get an appraisal of the house you are buying. These cost around $400 on average. If the appraised value ends up being $300,000 or higher (remember you offered to pay $300,000 for the home), the lender feels more comfortable giving you the loan because the house could be sold to cover it if necessary.
Now, let's tackle a bit of a stickier situation: What happens when the appraisal comes in lower than the purchase price?
Well, let's say that Westfield charmer was appraised at $275,000, not the $300,000 asking price you offered. This is a bit of a curveball in the home-buying journey. The lender will typically only approve a mortgage based on the appraised value, not the agreed-upon purchase price. So now, there's a $25,000 difference that needs to be accounted for.
How is this resolved? There are several routes you could take:
1. The seller reduces the price: This is the ideal solution for the buyer but might not sit well with the seller who was hoping for a higher sale price.
2. The buyer pays the difference: If you're truly smitten with the house, and if you have the resources, you could opt to pay the extra $25,000 out of pocket. But remember, your lender won't cover this portion, so it's all on you.
3. Negotiate a middle ground: The buyer and seller can meet in the middle, splitting the difference in some way.
4. Dispute the appraisal or request a second one: If you believe the appraisal was inaccurate, you can challenge it or request a second opinion. However, keep in mind that this may incur additional costs and there's no guarantee the new appraisal will be higher.
5. Walk away: If none of these options are feasible, you may need to walk away from the deal and find a new dream house.
Remember, while the appraisal process can seem intimidating, it's an essential step in protecting you from overpaying for your home. And if the numbers don't align perfectly, there are options and strategies you can explore to keep your home-buying journey on track.
Whether you're a first-time buyer in Indianapolis or a seasoned homebuyer in Westfield, understanding the ins and outs of real estate appraisals can help you navigate the Indiana real estate market with confidence. After all, knowledge is power—and in this case, the power to find and secure your dream home. Best of luck on your home-buying adventure!
As always, if you have questions about appraisals or any other topics about real estate, please reach out – I’m more than happy to help. Talk soon!