When you start shopping for a home you know that it’s going to be a huge investment. What might not occur to you is all of the upfront costs that can go into homeownership in addition to the actual purchase price that you and the seller agree upon for the home. There are closing costs and a host of fees that can all add up to impact your bottom line and the amount of funds that you need to contribute out-of-pocket when it’s time to close. Be sure to ask your lender for a Good Faith Estimate of what these costs should look like and feel free to question any that may seem unclear. One of the fees that you will see is for a home appraisal. Chances are that you’ll be using a mortgage to finance the purchase of your new home. Your lender will require a home appraisal to ensure that they are not lending you more money than the home is worth. A professional appraisal will estimate the value of your home taking into account size, location, home features and recent comparable sales. Cost for an appraisal varies put you should plan on paying about $300-$400 for this necessary service.
According to realtor.com, appraisals are “educated guesses by licensed or certified professionals on a home’s value in the current market. They serve a different role than a home inspector (also a necessary service that will cost about the same amount) who looks for defects in the home prior to closing. Appraisers’ asses your future homes size, location, number of bedrooms and bathrooms and any components that add value to determine the home’s worth. The good news with new construction is that the overall condition of your home is guaranteed to be top-notch and builders work hard to build homes that meet their value—they are professionals who invest a lot into market research to insure that they are building the right new home product at the right price. The Appraiser will compare your home with similar homes in the vicinity that have recently sold, using this information as a realistic matrix to assess your homes current value. They will formulate a report with their findings and turn it over to your lender so that they can then assess that the home is a worthwhile investment. While this sounds like a potentially stressful process don’t worry, it’s in your best interest! Appraisals ultimately protect you from immediately being upside down in a home that isn’t worth what you paid for it. Your bank will send you a copy of the report and as long your home has an appraised value equal or higher to your sales price, your loan will continue to move forward and that is one thing you can check off your list prior to closing.
If your appraisal turns out to be lower than your offer price on the home this can be problematic as your lender will not loan you more than the appraised price. If this happens check your sales contract and you’ll likely find an appraisal contingency. This contingency gives you the option to renegotiate the purchase price so that they lower the price to reflect the appraised value. As we mentioned above, this is rarely a problem with new construction and is more likely an issue that would be encountered when purchasing a resale home. If the seller refuses to adjust the price accordingly this contingency will allow you out of the contract without any negative ramifications. Or, if the seller refuses to lower the purchase price you would have the option of paying the difference between the contract price and the appraised price out-of-pocket. Save yourself a potential appraisal headache and shop the great selection of new construction available for your next new home, you’re sure to find a great option that you love and that appraises for your loan value!
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