After paying for an appraisal as part of a loan application, most buyers feel like they are done with that part of the real estate transaction. But nothing could be further from the truth. Here are four key things you should make sure your buyers understand about the appraisal process.

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After paying the requisite $300-$500 for an appraisal as part of a loan application, most buyers feel like they are done with the process. In reality, this money ends up being spent more for the benefit of the bank or mortgage company being used to get the loan, rather than for the benefit of the buyers themselves.

While paying for an appraisal can help protect the buyer, it can also create issues with the purchase of the new home they have fallen in love with. Here are a few key things you should make sure your buyers understand about the process:

1. Prepare for additional requirements

While the main purpose of an appraisal is to confirm value for the loan, it is not a perfect science as it’s always based on past sales.

Unfortunately, in a competitive market with a low inventory of homes, it is very possible for home values to be rising more quickly than comparable sales indicate. Due to this, buyers should be prepared for additional down payment requirements that could arise from a short appraisal.

While it is possible to get an appraisal changed, it is unlikely. Once appraisers lock in on a price, short of a clear error, most stick to their number.

2. Look at the home for possible appraisal issues

Buyers need to take a walk around the home themselves before making an offer to see if there are any potential appraisal issues. This is especially important if using a government-backed loan (FHA, VA or USDA) to make the purchase. Sometimes the simplest of issues, like an area with peeling paint on a home built before 1978, can become a deal killer.

Making sure that the home meets the basic requirements allows any issues to be addressed in the purchase contract for corrective measures before the appraiser shows up.

3. Check for critical necessities

When examining a home for potential appraisal issues, I like to follow the “Triple S” rule: safety, security and soundness. While most of these issues can be corrected later, the seller might not be willing or able to do so, so it is important to address them at the outset.

  1. Safety: Your new home should be habitable without any potential hazards. Look for common sense items such as handrails for stairs and egress to the outside from all bedrooms for fire safety.
  2. Security: Does the home have any broken windows or doors?
  3. Soundness: Are the mechanical systems in working condition? Are heat, plumbing and electrical all on and working? Does the roof or foundation have problems?

4. Know the difference between appraisals and inspections

Buyers need to understand that an appraisal is not the same thing as an inspection — and both are important. Although an appraisal does look at the condition of the house in part, it is not a full inspection.

To save money, buyers often say an inspection is not necessary because the house has been approved by an appraiser, but this is the wrong mindset. Buyers need to be sure that the purchase of a home — the largest investment they will likely make in their lifetimes — is a good one. Getting the home inspected, not just appraised, is the best way to ensure this.

Often, people seem to research the car they want to buy more than the house they are thinking about purchasing. Homebuying can be a very emotional decision, and it is very easy to overlook the flaws of the property a potential buyer is eyeing.

Make sure your buyers do their homework on all of the steps needed to buy a home and find a lender they can trust — the rest should be simple and fun, and your buyers can rest easy knowing that they have taken all the necessary steps in the appraisal process.

Jeff Owens is President of Better Homes and Gardens Real Estate Big Hill / First Realty Group located in Dayton/Columbus, OH, and Richmond, IN, respectively.

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