Assuming – like most people – you don’t have enough cash to purchase your next home, you’ll be required to shell out a few thousand on closing costs for services that are designed primarily to protect your lender against your potential default.
Some of these safeguards are initiated by the lenders, but others are required by government regulation.
Yes, I’m sure you’ll be glad to hear that the cost of keeping those big banks in line is being passed on to those of us who can’t afford to pay cash for our homes. But I digress.
The Value of an Appraisal
When the bank runs a credit check on you and requires you to buy homeowner’s insurance and title insurance, you can be sure they are protecting their own interests more than yours. But there is one closing cost that I view as particularly valuable for a buyer, and that is the appraisal.
I even advise my cash buyers to invest in an appraisal, although, statistically, most of them don’t. An appraisal is nothing more than a professionally generated opinion of value, and most of the cash buyers I’ve known either don’t care, or they just don’t like to be second-guessed.
Appraisal’s Protect Both Buyer and Bank
But from the less wealthy buyer’s point of view, the appraisal is a safeguard against paying too much. If your Purchase and Sale Agreement is worded properly, you shouldn’t have to pay more for a house than its appraised value, so a low appraisal will usually re-open negotiations with the seller, and may give you a chance to take a slice off the price.
In addition, most mortgage programs cap the mortgage at a certain percentage of the appraised value. If you want to increase your down-payment, you can still buy a house that appraises low, but not everyone has that luxury, so the usual next step is to go back to the seller and ask for a price reduction.
There may also be some secondary benefits to the appraisal process, although they mostly duplicate the findings of other aspects of your research.
Depending on your loan program, for instance, there may be certain construction standards or safety requirements that the appraiser is required to look for. These can include things like peeling paint or missing stair rails.
While these are also things that should be picked up in a building inspection, they carry greater weight if they are included in an appraisal report. If the lender turns down the loan because the appraiser reported a rotten porch stairway, you have more leverage to make the seller fix it than if it had just been a footnote in a building inspection.
To some extent, also, the appraiser should check the municipal records and flag anything that looks non-conforming, for instance overt code violations or a neighbor’s encroachment. But these are not things you want to rely on the appraiser to discover. Your buyer’s agent should be doing a more thorough search of the municipal records, advising you to bring in other professionals as needed, for instance if there are boundary line issues that should be resolved by a surveyor.
Article provided by Linda Wise a Merritt Island FL real estate agent specializing in Indian Harbour Beach Real Estate. If you’re interested in finding a sunny beach in Southern, FL to live you can find the perfect place to live by searching Malabar Florida Real Estate on Linda’s Tropical Realty site.