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Los Angeles Home Buyers | What is an Appraisal?

I was asked today by a Los Angeles home buyer “what do you mean when you say the home has to appraise.”

When a buyer makes an offer on a property they are relying on their Realtor® to have done a competitive market analysis (CMA) based on previous sales in the area.  However, the CMA is nowhere near as detailed as a professional appraisal.Home Appraisal

If you are buying a Los Angeles home with a loan then your lender is going to send out their appraiser to make sure that the home is indeed worth what you are paying for it.  The appraiser may be on staff or independent, but they will be fully licensed.  You, the buyer, will be paying for this appraisal.

Simply put, the appraiser, through various formulae, will determine the value of the home.  If the home appraises for the price being paid then the processing of the loan should continue smoothly.  If it does not appraise for the full value then you as a buyer have three options:  you can ask the seller to lower the price, you can make up the difference between the appraised value and the amount you have contracted to pay, or you can cancel the contract.

In California, one of the contingencies you will be requesting is an appraisal contingency, which you will have together with a loan contingency. This allows you to cancel if the home does not appraise (or if you do not get the loan).

If you are an all cash buyer, you generally will not select the appraisal contingency.  However, if you have any doubt that you are paying the right price for the home, it would be wise to make sure that contingency is in place.  In this case, you will hire your own appraiser.  You also have three choices:  ask the seller to lower the price, cancel the contract or live with the fact that you may be overpaying.

Since the appraiser being used may be either inexperienced or from out of the area, you may also request a second appraisal, especially if you disagree with the findings.

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17 commentsJane Peters • April 23 2012 12:42PM

Comments

Jane - Great explanation!  I always provide my buyers with a CMA and give them a range, but you never know what comparables the appraiser will use.

Posted by Michelle Gibson, REALTOR (Hansen Real Estate Group Inc. ) almost 2 years ago

Michelle, you are right.  An appraiser uses different criteria.

Posted by Jane Peters, Connecting you to the L.A. real estate scene (Power Brokers Int'l) almost 2 years ago

Jane - A great explanation of "What is an Appraisal" and what can happen if the property does not appraise for the purchase price.   I always do a CMA so I know what comps an appraiser should, or may be looking at.  It seems to give buyers and sellers a good value range and has minimized appraisal issues for my clients.

Posted by Laura Allen, Lake Tahoe - Truckee Real Estate for Sale www.TahoeLauraLuxuryHomes.com, Tahoe Real Estate Agent Helping Buyers and Sellers (Coldwell Banker, Tahoe City, CA (530) 414-1260) almost 2 years ago

Laura,  however, sometimes an appraisal can be off the wall, and even if it appraisers an underwriter who does not understand the area can nix the whole thing.  Happened to me, and I my buyer had to find another lender who got it through.

Posted by Jane Peters, Connecting you to the L.A. real estate scene (Power Brokers Int'l) almost 2 years ago

Jane,

We cannot forget that words that are used everyday in our industry might be be familiar to a buyer or seller. You did a great job explaing what an appraisal is. :)

Posted by Patty Da Silva, Davie, Southwest Ranches Cooper City, Plantation, Weston, REALTOR, Top Listing Broker (BROKER of Green Realty Properties® - 954-667-7253) almost 2 years ago

Patty,  I know.  We assume that people know what we are talking about.

Posted by Jane Peters, Connecting you to the L.A. real estate scene (Power Brokers Int'l) almost 2 years ago

Hi Jane,

Great post with a good solid explanation to a question that is asked often! We do take for granted the consumer knows our terminology!

Posted by Dorie Dillard, Realtor-Canyon Creek- NW, Austin TX Homes For Sale (Coldwell Banker United Realtors) almost 2 years ago

Dorie,  indeed.

Posted by Jane Peters, Connecting you to the L.A. real estate scene (Power Brokers Int'l) almost 2 years ago

Awesome idea for a post Jane.  You know it's not in our contract unless we add that addendum and I'm so often surprised at the buyers agents who do not include it when offering on my listings.

Posted by Tammy Lankford, Your Lake Sinclair Expert (706-485-9668) (Lane Realty) almost 2 years ago

Tammy,  ouch.  You need to check it on ours, but it is there, together with the loan contingency.  I can't imagine not checking it if there is a loan in place.

Posted by Jane Peters, Connecting you to the L.A. real estate scene (Power Brokers Int'l) almost 2 years ago

We have that contingency in our contracts about the property and the buyer being approved for the loan.  If had a few properties that didn't appraise, but it wasn't off by much.  GREAT explanation Jane.

Posted by Carla Muss-Jacobs, Principal Broker/Owner, Buyer Focused ~ Buyer Results (BuyersAgentPortland.com | (503) 810-7192 Portland Metro Exclusive Buyers Agent | 100% Buyer Representation ~ 100% of the Time) almost 2 years ago

Carla,  thank you.  I had one that appraised properly but he underwrite knocked it down $100K.  Go figure.

Posted by Jane Peters, Connecting you to the L.A. real estate scene (Power Brokers Int'l) almost 2 years ago

Your explanation is superb! With interest rates so low, many people are getting loans. Knowing the area market and comparables is a key integral part of getting an accepted offer on a property that will appraise.

Posted by Sun City Grand Homes Surprise AZ Real Estate Leolinda Bowers, Associate Broker Realtor Arizona Golf Communities (Long Realty West Valley Sun City Grand Surprise Arizona) almost 2 years ago

Leolinda, we are the first defense to ensure that the buyer is going to get that loan, or if all cash, is not overpaying.

Posted by Jane Peters, Connecting you to the L.A. real estate scene (Power Brokers Int'l) almost 2 years ago

In my area, most of the time when a house does not appraise, the seller will lower the price of the purchase....but they may challenge the appraisal first.  That does happen and I do advise my buyers not to assume that any funny business has gone on if the appraisal changes after a challenge.

Posted by Kathryn Maguire, Serving Chesapeake, Norfolk, VA Beach (GreatNorfolkHomes.com (757) 560-0881) almost 2 years ago

This is a great post! Appraisels are so important and having an appraiser that knows the area is vital1

Posted by Barbara-Jo Roberts Berberi, Palm Harbor Florida Residential Real Estate (Charles Rutenberg Realty) almost 2 years ago

Kathryn,  the only funny business is the appraiser who got it wrong :)

Barbara,  that is essential.

Posted by Jane Peters, Connecting you to the L.A. real estate scene (Power Brokers Int'l) almost 2 years ago

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