What Happens When Your House Appraised for More Than Selling Price?
Learn what occurs when a property's assessed worth is higher than its purchase agreement, simplifying the sale for all.
A home appraisal is a professional assessment of a property’s market value, typically required by lenders when financing a home purchase. Its purpose is to provide an independent valuation that confirms the property’s worth supports the loan amount. When an appraisal indicates a value higher than the agreed-upon selling price, it presents a favorable scenario for the buyer and lender.
Understanding What an Appraisal Represents
An appraisal is an independent valuation of a property’s worth, conducted by a licensed appraiser. This valuation is primarily for the lender to confirm the property’s value supports the mortgage amount, serving as collateral for the loan. The appraiser considers various factors, including the property’s characteristics, condition, and recent sales of comparable homes in the area.
An appraisal differs from a home inspection, which assesses a property’s physical condition and identifies potential issues. It is also distinct from a comparative market analysis (CMA), which real estate agents use to estimate a home’s listing price based on market trends. The appraisal provides an unbiased, third-party opinion of value, important for the lending process.
Why an Appraisal Might Exceed the Selling Price
An appraisal might exceed the selling price due to market dynamics and property-specific factors. In a rapidly appreciating real estate market, values can increase significantly between the time an offer is made and the appraisal is conducted. This swift upward trend means comparable sales used by the appraiser might reflect higher prices than those considered when the initial offer was structured.
Sometimes, a seller might intentionally price their home below market value to attract multiple offers or expedite a sale. This strategy can lead to an agreed-upon price that is lower than the property’s actual market worth, as later determined by an appraiser. Unique or superior features of the property, such as recent upgrades or desirable landscaping, might not have been fully accounted for in the initial pricing analysis but are recognized by the appraiser.
The appraiser’s research may uncover more recent comparable sales that reflect a higher value than those initially used for pricing. These newer data points provide a more current snapshot of the market, potentially revealing the property’s true higher value. The appraiser’s role is to provide an objective valuation based on current market data.
Implications for the Home Seller
For the home seller, an appraisal that comes in higher than the selling price has no negative impact on the current transaction. The sale proceeds as agreed upon in the contract, at the original selling price. This outcome means the seller secured the agreed-upon amount, and the deal is secure.
While it indicates the seller potentially could have commanded a higher price, the existing contractual agreement remains binding. This scenario provides reassurance that their property is a valuable asset and the agreed-upon sale price was reasonable. The higher appraisal simply validates the property’s market position.
Implications for the Home Buyer
A higher appraisal is a favorable outcome for the home buyer. It means the buyer is acquiring the home for less than its independently assessed market value. This situation provides the buyer with immediate equity in the property upon purchase.
For example, if a home is purchased for $300,000 but appraises at $320,000, the buyer gains $20,000 in equity from the outset. This built-in equity strengthens the buyer’s financial position, offering benefits for future refinancing or home improvement loans. It also reassures the lender that the collateral for the loan is strong, as the property’s value comfortably supports the loan amount.
Proceeding with the Transaction
When a home appraises for more than the selling price, the transaction proceeds smoothly without changes to the agreed-upon sale price. The original contract terms remain in effect, and both parties continue towards closing. No renegotiation is necessary.
A higher appraisal simplifies the lending process because the property’s value easily supports the loan amount, reducing risk for the lender. Buyers should avoid attempting to renegotiate the price downward, as the seller has no incentive to accept a lower amount. The transaction simply moves forward, confirming the buyer’s favorable position.