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Selling a home is similar to completing a puzzle. There are many steps to the home selling process, whether it’s the first home you’re selling or the fifth home. One missing piece to the home selling “puzzle” will commonly result in an unsuccessful home sale.
There are many challenges that a homeowner will face during the home selling process. One of the most common challenges that a homeowner will face during the home selling process is getting through the banks appraisal on their home.
The first thing to understand when it comes to a bank appraisal is that it is not a home inspection. Most home buyers will have a home inspection when buying a home and for good reason. A home inspection is a very detailed inspection of a property in comparison to the bank appraisal.
Even though the bank appraisal is not as thorough of an inspection as the home inspection, it’s still very possible that issues will arise from the bank appraisal. What are the most common bank appraisal issues in real estate?
Read on and you’ll find out what the most common issues are resulting from bank appraisals in real estate.
Banks Appraiser Cites Repairs
One of the most common issues resulting from the bank appraisal is that the bank appraiser cites repairs that are needed on the home. Again, the bank appraiser is not inspecting the property as thoroughly as a home inspector, however, the bank appraiser is looking for certain deficiencies in the home.
It’s important to understand that there are different requirements for the various types of financing that a buyer can get. For example, an FHA appraisal or a VA loan appraisal has more stringent guidelines than that of a conventional appraisal. Depending on what type of financing the buyer is getting can make a huge difference whether the bank appraiser cites repairs or not.
What are the most common repairs cited by bank appraisers during their appraisal of a home? Below are some of the most common repairs cited in a bank appraisal.
One of the most common repairs that is cited during an FHA appraisal relates to peeling paint. Homes that are built prior to 1978 can possibly contain lead paint, which can be hazardous for many reasons. A bank appraiser will visually inspect the condition of the interior walls, the exterior construction of the home, and the windows to ensure there is not peeling paint.
If peeling paint is cited in the banks appraisal, in most cases, the repairs must be completed prior to the bank approving the loan. The only circumstance that would normally allow peeling paint to not be corrected prior to closing is if the subject property is located in a climate that does not allow for painting to be completed.
For example, during the recent sale of an Irondequoit, NY home, the bank appraiser indicated there was peeling paint on the exterior of the home that needed to be completed. Since it was winter and the weather was not conducive to allow for exterior painting, the bank allowed money to be kept in an escrow account until the work was able to be completed in the spring time. Typically, the bank will require one and a half times the estimated repairs be kept in the escrow account until they can verify the work has been completed.
Another repair that is cited by a bank appraiser is the lack of handrails. Many mortgage products require that any set of steps that contain more than 3 must have a railing, as it can be considered a safety hazard.
It’s also common that a bank appraisal will require a railing to be present on a deck or porch if there isn’t one present. This obviously is to prevent the possibility of someone falling off a deck or porch.
Broken Or Missing Windows/Glass
Broken windows and glass are another common repair that is cited in bank appraisals. Bank appraisers normally will not go to the extent of checking the functionality of a window, however, they are looking to make sure the panes of glass are in good condition and not broken. Bank appraisers will also ensure that there are no missing windows.
One of the most expensive repairs on a home is replacing a roof. There are tell-tale signs to know if a new roof is needed on a home or not. Since the cost to replace a roof is significant, a bank appraiser will make sure the roof is in good condition.
It is common to see a bank appraiser question the condition of a roof in their appraisal report. The majority of mortgage products will require that there is at least 3 years of life expectancy remaining on a roof. If there is question as to whether or not a roof has this amount of time remaining, the bank appraiser will require that a “roof certification” is completed by a reputable roofing contractor prior to the closing that indicates there is at least 3 years of life remaining.
Inadequate Electrical System
The electrical system of a home is thoroughly inspected during the home inspection and often results in one of the most common home inspection findings. There are however scenarios where a bank appraiser will cite an inadequate electrical system.
The most common reason why an electrical system is considered inadequate relates to the amperage of the electrical system. While it’s rare to see a home that still has fuses, it’s even more rare to see a home that has a 60 AMP electrical system running into the home. Most bank appraisers will require that a service upgrade is completed prior to closing as a 60 AMP electrical system can be a safety issue. Inadequate electrical systems are one of the most common reasons why a home will fail a VA bank appraisal.
Non Functional Heating & Cooling System
During a bank appraisal the appraiser will verify that the heating and cooling systems seem to be in working order. If a homes furnace is not functioning properly, it will be cited in the banks appraisal that it must be working prior to the mortgage being approved. Similar to the cost to replace a roof, replacing a heating or cooling system can be expensive and the appraiser wants to ensure they are in working order.
The Subject Property “Under Appraises”
One of the biggest nightmares a seller can experience while selling their home is their home “under appraisers.” The biggest reason a bank requires an appraisal is they want to ensure the property is worth what the buyer and seller have agreed to. One of the biggest issues resulting from a bank appraisal is the appraiser cannot substantiate that the value of the home is at least what the agreed upon sale price was.
One of the most frequently asked questions from home sellers is, “What happens if my home under appraises?” It’s important to understand what the possible scenarios are if your home under appraises.
Below are the most common scenarios that occur when a home under appraises and also some tips to help deal with low appraisals.
Contest The Appraisal/Ask For New Appraisal To Be Completed
In most cases, contesting the appraisal or asking for a new appraisal to be completed is unsuccessful. When you contest an appraisal or ask for a new appraisal to be completed, you’re theoretically saying that the bank appraiser was wrong with his report. Successfully getting the appraiser to change his value or the lender allowing for a new appraisal to be completed will depend on the lender as well as the appraiser.
It’s important that if you’re going to attempt to contest a low appraisal, you have an experienced real estate agent selling your home. An experienced real estate agent should know how to deal with low appraisals and know how to approach an appraiser and lender without offending them.
Reduce The Sale Price To Match The Appraised Value
While it’s a tough pill to swallow for a seller, one of the most common scenarios that result from a low appraisal is the seller will agree to reduce the sale price to match the appraised value. This isn’t always possible for a seller though if they don’t have much equity in their home and cannot afford to come out of their pocket to pay off their mortgage and pay their closing expenses.
Buyer Makes Up The Difference
Another scenario that may result from a low appraisal is the buyer will make up the difference at closing between the appraised value and the sale price. This scenario is rare, similar to contesting an appraisal, since many buyers will not feel like they should pay more for a home than a bank appraiser determines it is worth.
Depending on your real estate market, it’s more likely a buyer will be willing to make up the difference between the sale price and appraised value if they are buying a home that is located in a sellers market. The lack of homes available for sale in a market is the primary reason a buyer would make up the difference as it could be months until they find another home that suits their needs.
Renegotiate/Meet In The Middle
Another likely result from a low bank appraisal is that a buyer and seller will renegotiate the original accepted offer. This scenario is more likely to be successful than a buyer making up the difference or contesting an appraisal. In essence, a buyer and seller would attempt to renegotiate the sale price to result in a sale price that would be acceptable for both the seller, the buyer, and the lender.
Since the majority of home buyers will need a mortgage to purchase a home, the bank appraisal is a piece of the home selling puzzle that cannot be avoided. It’s important to understand that the bank appraiser is protecting a large investment that the bank is making. Blaming a bank appraiser for citing repairs or under appraising a home in most cases is ridiculous.
These common issues with a bank appraisal can be avoided if the proper steps are taken. Again, having an experience sellers agent can make a huge difference as they can point out many of the possible items a bank may cite for repair as well as they will know how to properly price your home for sale to avoid low bank appraisals.
Other Top Home Selling Resources
If you’re selling a Rochester, NY area home, knowing what the most common issues with a bank appraisal is critical! If you’re unsure whether or not your home would “pass” the bank appraisal, contact me, I’d be happy to walk through your home and complete a comprehensive, free CMA on your home!
About the authors: The above article “Common Issues With A Bank Appraisal In Real Estate” was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise.
We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.
Visit our website at www.HiscockHomes.com.
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