During any mortgage and home sale process, the appraisal is one of the most important basic considerations. This is the process of assessing the property to be sold to ensure the asking price and price being paid are fair based on the home’s market value and other factors.
At VIP Mortgage, Inc., we’ll walk you through the home appraisal process for any of our mortgage and home sale types, including refinancing options. One event that can put a home sale in jeopardy for more than just the obvious reasons: An over-inflated appraisal. Let’s go over the basics of a standard appraisal, what an over-inflated appraisal is, and why it can be such a risk.
An appraisal is carried out by a licensed third party, known as an appraiser, and is part of a home sale’s closing process. The appraiser will consider several factors while assessing the home, from the size of the property and its location to numerous elements of its condition and upkeep status. Factors like number of rooms, appliance status and value of recent home sales in nearby comparable lots will all play a role.
Generally speaking, anyone involved in the home sale can request the appraisal. The seller may do this in advance of placing the home on the market, while the buyer or their real estate agent may request an appraisal separately. The lender also may request their own before approving funds for the home. Finally, homeowners can request their own appraisals when looking into refinancing.
When the seller’s appraisal (or just their asking price, as not all sellers carry out appraisal before listing a price) comes in higher than the market value determined by other parties, this is what’s known as an over-inflated appraisal. If the gap here is small, it’s usually possible for the parties to arrive at a fair middle ground. If it’s large, however, it could signal some other risks and may even derail the home sale altogether.
Some might be reading this and thinking the risks here aren’t too great. After all, if a seller has an over-inflated appraisal and will not come down from that number at all, you simply move on to other home options.
It’s not really that simple in most cases, however. Over-inflated appraisals are often viewed as a significant type of mortgage fraud, one where the seller knows the buyer will be too far down the road and will pay a ridiculous price just to avoid the hassle. Another form of this occurs when a buyer attempts to inflate an appraisal so they get better financing position from a lender, something lenders have been cracking down on in recent years.
If you’re concerned about gaps in appraisal during a home sale, speak to our mortgage professionals. For more details on this or any of our mortgage services, speak to the staff at VIP Mortgage, Inc. today.