Appraisals used to be known as a helpful and fair tool to help determine the value of a home until recent market shifts which leave appraisals lagging in the distance rather than up to date with current market analysis.
When we have a steady market an appraisal, when done well, can be an asset to a transaction to ensure everyone is getting a fair deal. When the market sky rockets as we saw in recent years the appraisal values are left in previous six month sales prices leaving buyers a big gap to bridge out of their own pocket causing major speed bumps in a transaction.
I have been in Real Estate for almost 12 years now, and I have seen my share of good appraisals and bad appraisals and know that as much as they try to make it a science, it is in fact an art because not every appraiser is good - just like not every realtor is good.
If you are in the situation where you have an appraisal come in incredibly low compared to what's happening in the market you are purchasing it it can effect your cash to close in a big way. You might have to bridge the gap between the appraisal value and the purchase price if the Seller won't renegotiate. Or it could even cause a cancellation depending on how your offer is drafted.
You also have an option to try to challenge the appraisal or ask for a re-appraisal. It can be time consuming, and it isn't a guaranteed win. I've challenged one appraisal and I did in fact win. I've also had to ask for a re-appraisal on a property that was selling for $3,000,000 and the appraisal came back at $2,500,000 and after doing some digging I found out the appraiser normally worked on the west coast and knew nothing about the neighborhood. The re-appraisal came back above $3,000,000- because I did know about the neighborhood.
My advice is to make sure that whoever you decide to work with has done their research enough to know and catch if an appraisal seems "off" because it could end up costing you thousands of dollars out of pocket!
To find out more information on the transaction process feel free to give me a call and chat